The opinion
Opinions of the United
1997 Decisions States Court of Appeals
for the Third Circuit
12-5-1997
College Savings Bank v. FL Prepaid
Precedential or Non-Precedential:
Docket
97-5055,97-5086
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Filed December 5, 1997
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 97-5055 and 97-5086
COLLEGE SAVINGS BANK,
Appellant in No. 97-5055
UNITED STATES OF AMERICA,
Intervenor-Plaintiff in D.C.
v.
FLORIDA PREPAID POSTSECONDARY EDUCATION
EXPENSE BOARD
COLLEGE SAVINGS BANK
UNITED STATES OF AMERICA,
Intervenor-Plaintiff in D.C.
v.
FLORIDA PREPAID POSTSECONDARY EDUCATION
EXPENSE BOARD
United States of America,
Appellant in No. 97-5086
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civ. No. 95-4516)
Argued October 20, 1997
BEFORE: MANSMANN, GREENBERG, and
ALARCON,* Circuit Judges
(Filed December 5, 1997)
David C. Todd (argued)
Deborah M. Lodge
Patton Boggs, L.L.P.
2550 M Street NW
Washington, DC 20037
Arnold B. Calmann
Saiber, Schlesinger, Satz &
Goldstein
One Gateway Center
Newark, NJ 07102
Attorneys for Appellant
College Savings Bank
Frank W. Hunger
Assistant Attorney General
Faith S. Hochberg
United States Attorney
Mark B. Stern
Michael E. Robinson (argued)
Department of Justice
950 Pennsylvania Ave., N.W.
Washington, DC 20530-0001
Attorneys for Intervenor-Appellant
_________________________________________________________________
*Honorable Arthur L. Alarcon, Senior Judge of the United States Court
of Appeals for the Ninth Circuit, sitting by designation.
2
William B. Mallin (argued)
Lewis F. Gould, Jr.
Joseph M. Ramirez
Anne E. Hendricks
Eckert Seamans Cherin &
Mellott, LLC
600 Grant Street, 42nd Floor
Pittsburgh, PA 15219
Louis F. Hubener
Assistant Attorney General of
Florida
The Capitol
Tallahassee, FL 32399-1050
Attorneys for Appellee
Gerald P. Dodson
Emily A. Evans
Arnold, White & Durkee
155 Linfield Drive
Menlo Park, CA 94025-3741
Richard L. Stanley
Arnold, White & Durkee
750 Bering Dr., Suite 400
Houston, TX 77057
P. Martin Simpson, Jr.
The University of California
Office of Technology Transfer
1320 Harbor Bay Pkwy
Suite 150
Alameda, CA 94501
Attorneys for Amicus Curiae
Regents of The University of
California
3
OPINION OF THE COURT
GREENBERG, Circuit Judge.
I. INTRODUCTION
College Savings Bank ("CSB") and the United States
appeal from a final judgment entered in the district court
on December 16, 1996, dismissing an unfair competition
claim CSB brought against Florida Prepaid Postsecondary
Education Expense Board ("Florida Prepaid") under the
Lanham Act. See 15 U.S.C. S 1051 et seq. They assert that
the district court had jurisdiction pursuant to 28 U.S.C.
SS 1331 and 1338(a). We have jurisdiction to review the
judgment of the district court pursuant to 28 U.S.C.
S 1291, and we exercise plenary review. See Alston v.
Redman, 34 F.3d 1237, 1242 (3d Cir. 1994).
II. FACTUAL AND PROCEDURAL HISTORY
CSB is a New Jersey chartered, FDIC-member bank.
Since 1987, it has been selling CollegeSure(R) CDs which
are deposit contracts designed to provide sufficient funds to
cover future costs of college education. CSB administers
these deposit contracts in accordance with a patented
methodology. See College Sav. Bank v. Florida Prepaid
Postsecondary Educ. Expense Bd., 948 F. Supp. 400, 401
n.1 (D.N.J. 1996). The State of Florida created the appellee
Florida Prepaid to market and sell tuition prepayment
programs designed to provide sufficient funds to cover
future college expenses. See Fla. Stat. ch. 240.551 (1997).
In conjunction with the sale of its accounts, Florida Prepaid
publishes brochures and issues annual reports. Thus, CSB
and Florida Prepaid compete in selling this type of college
savings account.
CSB first brought an action in the district court against
Florida Prepaid on November 7, 1994, alleging that Florida
Prepaid had infringed its patent. CSB subsequently brought
another action in the same court on August 25, 1995,
against Florida Prepaid alleging that it had violated section
4
43(a) of the Lanham Act, 15 U.S.C. S 1125(a). 1 CSB claimed
in the second action that Florida Prepaid made
misstatements about Florida Prepaid's tuition savings plans
in its brochures and annual reports which constituted
unfair competition. We deal only with the second action
and thus our further references are to that case.
Florida Prepaid answered the complaint and filed a
counterclaim on November 8, 1995, alleging defamation,
product disparagement, and trade libel based on
statements made by Peter Roberts, president of CSB. CSB
moved to dismiss the counterclaim on February 9, 1996,
and the district court granted that motion on March 22,
1996.
Florida Prepaid filed motions to dismiss CSB's complaint
on April 26, 1996, alleging that the recent Supreme Court
decision of Seminole Tribe of Fla. v. Florida, 116 S.Ct. 1114
(1996), which confined Congress' authority to abrogate a
state's Eleventh Amendment immunity from a suit in a
federal court to the enforcement section of the Fourteenth
Amendment, deprived the district court of jurisdiction.
Florida Prepaid claimed that: (1) in the light of Seminole
Tribe, the Trademark Remedy Clarification Act of 1992,
Pub. L. No. 102-542, 106 Stat. 3567 (1992) ("TRCA"), which
abrogated the states' Eleventh Amendment immunity under
the Lanham Act, was unconstitutional, because the
abrogation was not a proper exercise of Congress'
Fourteenth Amendment enforcement powers; and (2)
Seminole Tribe implicitly overruled the Parden doctrine,
which allows for the constructive waiver of Eleventh
Amendment immunity by a state engaging in an activity
after Congress subjected it to suit arising from the activity.
See Parden v. Terminal Ry. of Ala. State Docks Dep't, 377
U.S. 184, 84 S.Ct. 1207 (1964). The United States
intervened on August 2, 1996, to defend the
constitutionality of the Lanham Act's application to the
states and thus does not take a position on CSB's other
arguments.
_________________________________________________________________
1. It also pleaded a common law tort of unfair competition but we will
not discuss that claim further as the district court dismissed it, and the
claim obviously could not be asserted successfully in the light of the
Eleventh Amendment.
5
With regard to the Lanham Act claim, the district court
found that, after Seminole Tribe, the TRCA, as applied to
the present case, was an unconstitutional attempt to
abrogate the states' Eleventh Amendment immunity. The
court concluded that inasmuch as this case does not
involve a protected property interest, the enactment of the
TRCA could not be a proper exercise of Congress' powers
under section five, the enforcement section, of the
Fourteenth Amendment. See College Sav. Bank, 948 F.
Supp. at 426-27. The district court further held on two
separate grounds that the Parden doctrine of constructive
waiver did not permit CSB to sue Florida Prepaid in federal
court. First, the district court found that the constructive
waiver doctrine did not apply because Florida Prepaid was
engaging in a core government function. See id. at 418.
Second, the district court determined that the Supreme
Court's decision in Seminole Tribe implicitly overruled the
Parden doctrine of constructive waiver. See id. at 420.
Therefore, on either of these grounds, the district court held
that Parden did not permit CSB's suit against Florida
Prepaid in federal court. Finally, the district court rejected
CSB's contention that Florida Prepaid had waived its
immunity through its appearance in the litigation. See id.
at 414. Thus, the district court granted Florida Prepaid's
motion to dismiss the Lanham Act claim on December 13,
1996.
CSB appealed from the dismissal of the Lanham Act
claim to this court.2 We will affirm the district court's
holding that the TRCA is an unconstitutional exercise of
Congress' Fourteenth Amendment powers as applied to the
present case, but we express no opinion on whether
Seminole overruled Parden, because we hold that even if the
Parden waiver doctrine is still viable, it does not apply to
Florida Prepaid. Finally, we hold that Florida Prepaid did
not waive its Eleventh Amendment immunity through its
appearance in this litigation.
_________________________________________________________________
2. The district court denied Florida Prepaid's motion to dismiss the
Patent Act claim in the same order of December 13, 1996, and
subsequently Florida Prepaid appealed from the denial to the United
States Court of Appeals for the Federal Circuit.
6
III. DISCUSSION
A. The Eleventh Amendment
The Eleventh Amendment provides:
The Judicial power of the United States shall not be
construed to extend to any suit in law or equity,
commenced or prosecuted against one of the United
States by Citizens of another State, or by Citizens or
Subjects of any Foreign State.
The Supreme Court has interpreted the amendment to
prevent suits against unconsenting states in federal court.
See Seminole Tribe of Fla. v. Florida, 116 S.Ct. at 1122.
Because Florida Prepaid is an arm of the State of Florida,
see College Sav. Bank, 948 F. Supp. at 413, the Eleventh
Amendment is a potential bar to CSB's suit against Florida
Prepaid. However, this protection available to states under
the Eleventh Amendment can be circumvented if Congress
properly abrogates the immunity, see Seminole Tribe, 116
S.Ct. at 1123, or if a state waives its immunity and
consents to suit in federal court. See Welch v. Texas Dep't
of Highways and Pub. Transp., 483 U.S. 468, 473-74, 107
S.Ct. 2941, 2946 (1987). CSB contends that there has been
both abrogation and waiver in this case. We will consider
each of these arguments in turn.
B. The TRCA's Abrogation of
Eleventh Amendment Immunity
One of the main purposes of section 43 of the Lanham
Act is to protect persons engaged in interstate commerce
against unfair competition caused by false or misleading
representations or advertising about goods, services, or
commercial activities. See 15 U.S.C. S 1125(a)(1). Congress
amended the Act in 1992 when it enacted the TRCA to
clarify its intent to abrogate the Eleventh Amendment
immunity of states in actions under the Lanham Act. See
15 U.S.C. S 1125(a). Congress passed the TRCA in response
to Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 246,
105 S.Ct. 3142, 3149 (1985), which required Congress to
give an explicit and unambiguous statement in a statute to
7
manifest an intent to abrogate the states' immunity under
the Eleventh Amendment. See S. Rep. No. 102-280, at 4-7
(1992), reprinted in 1992 U.S.C.C.A.N. 3087, 3090-93. By
enacting the TRCA, Congress intended to place states on an
equal footing with commercial competitors. See id. at 3093,
3095. Inasmuch as Florida Prepaid is an arm of the State
of Florida, the TRCA by its terms, if valid, would abrogate
Florida Prepaid's Eleventh Amendment immunity. See
College Sav. Bank, 948 F. Supp. at 413. However, Florida
Prepaid argues that the Seminole Tribe decision limiting the
scope of Congress' powers to abrogate a state's Eleventh
Amendment immunity renders the TRCA unconstitutional
as applied in this case. We agree with this contention.
1. The Seminole Tribe Decision
In Seminole Tribe, the Court set forth a clear two-part
standard of how Congress could abrogate the Eleventh
Amendment immunity of states. See id. at 1123. The Court
said that to find if there has been an abrogation a court
must answer two questions affirmatively: "first, whether
Congress has `unequivocally expresse[d] its intent to
abrogate the immunity,' and second, whether Congress has
acted `pursuant to a valid exercise of power.' " Id. (citations
omitted).
a. Legislative Intent
Under the first question posed by Seminole Tribe,
Congress must evidence an intent to abrogate the states'
immunity from suit in federal court through a "clear
legislative statement." Id. (quoting Blatchford v. Native
Village of Noatak, 501 U.S. 775, 786, 111 S.Ct. 2578, 2584
(1991)). The TRCA surely manifests that intent. Section
1122, entitled "Liability of States, instrumentalities of
States and State officials" provides:
(a) Any State, instrumentality of a State or any officer
or employee of a State or instrumentality of a State
acting in his or her official capacity, shall not be
immune, under the eleventh amendment of the
Constitution of the United States or under any other
doctrine of sovereign immunity, from suit in Federal
8
court by any person, including any governmental or
nongovernmental entity for any violation under this
chapter.
(b) In a suit described in subsection (a) of this section
for a violation described in that subsection, remedies
(including remedies both at law and in equity) are
available for the violation to the same extent as such
remedies are available for such a violation in a suit
against any person other than a State, instrumentality
of a State, or officer or employee of a State or
instrumentality of a State acting in his or her official
capacity. . . .
15 U.S.C. S 1122. This language manifests Congress'
unambiguous intent to abrogate the states' immunity.
Therefore, the TRCA meets the first requirement of Seminole
Tribe to find that Congress has abrogated the states'
immunity.
b. Valid Exercise of Power
The second prong of Seminole Tribe requires that
Congress act pursuant to a valid exercise of power. Prior to
Seminole Tribe, the Supreme Court had determined that
there were only two constitutional bases for Congress
validly to abrogate the states' Eleventh Amendment
immunity. First, in Fitzpatrick v. Bitzer, 427 U.S. 445, 96
S.Ct. 2666 (1976), the Court found that Congress could act
pursuant to section five of the Fourteenth Amendment to
abrogate states' immunity under the Eleventh Amendment.
The Court reasoned that Congress had this power because
the Fourteenth Amendment "had fundamentally altered the
balance of state and federal power struck by the
Constitution." Seminole Tribe, 116 S.Ct. at 1125.
Second, in Pennsylvania v. Union Gas Co., 491 U.S. 1,
109 S.Ct. 2273 (1989), "a plurality of the Court found that
the Interstate Commerce Clause, Art. I, S 8, cl. 3, granted
Congress the power to abrogate state sovereign immunity."
Seminole Tribe, 116 S.Ct. at 1125. In Seminole Tribe, the
Court was asked to find a third basis of authority for
Congress to abrogate the states' Eleventh Amendment
immunity -- the Indian Commerce Clause. See U.S. Const.
9
Art. 1, S 8, cl. 3. The Court held that the Indian Commerce
Clause did not provide a basis for Congress to exercise that
power. In fact, the Court overruled Union Gas by
determining that the Commerce Clause itself did not
provide a basis for Congress to abrogate the states'
immunity under the Eleventh Amendment. See Seminole
Tribe, 116 S.Ct. at 1128. Thus, since Seminole Tribe section
five of the Fourteenth Amendment has been the sole basis
for Congress to abrogate the states' immunity under the
Eleventh Amendment. Accordingly, to meet the second
prong of the Seminole Tribe test, the TRCA must have been
enacted pursuant to this power.
2. The Fourteenth Amendment and the TRCA
The legislative history of the TRCA does not delineate
conclusively the constitutional basis for its enactment. The
only mention of Fourteenth Amendment authority is found
in a brief notation in a Senate Report. See S. Rep. No. 102-
280, at 8 (1992), reprinted in 1992 U.S.C.C.A.N. 3087, 3094
(stating that the TRCA "is justified under the Commerce
Clause and the Fourteenth Amendment."). Yet this failure
to explain fully the constitutional justification for its
enactment does not invalidate the TRCA, for Congress is
not required to discuss or explain explicitly the
constitutional basis for laws that it enacts. See, e.g., FCC v.
Beach Communications, Inc., 508 U.S. 307, 315, 113 S.Ct.
2096, 2102 (1993) (holding that a legislature is"never
require[d] . . . to articulate its reasons for enacting a
statute"); EEOC v. Wyoming, 460 U.S. 226, 243-44 n.18,
103 S.Ct. 1054, 1064 n.18 (1983).3
_________________________________________________________________
3. The Court in EEOC v. Wyoming stated:
It is in the nature of our review of congressional legislation
defended
on the basis of Congress' powers under S 5 of the Fourteenth
Amendment that we be able to discern some legislative purpose or
factual predicate that supports the exercise of that power. That
does
not mean, however, that Congress need anywhere recite the words
`section 5' or `Fourteenth Amendment' or `equal protection' for
`[t]he
. . . constitutionality of action taken by Congress does not depend
on recitals of the power which it undertakes to exercise.'
460 U.S. at 243-44 n.18, 103 S.Ct. at 1064 n.18 (citations omitted)
(quoting Woods v. Cloyd W. Miller Co., 333 U.S. 138, 144, 68 S.Ct. 421,
424 (1948)).
10
Furthermore, as the Court recently has stated,
congressional enactments are accorded a "presumption of
validity," because "[i]t is for Congress in the first instance to
`determin[e] whether and what legislation is needed to
secure the guarantees of the Fourteenth Amendment,' and
its conclusions are entitled to much deference." City of
Boerne v. Flores, 117 S.Ct. 2157, 2172 (1997) (quoting
Katzenbach v. Morgan, 384 U.S. 641, 651, 86 S.Ct. 1717,
1723-24 (1966)). However, "Congress' discretion is not
unlimited" and courts must ensure that congressional acts
do not overstep the boundaries of the Fourteenth
Amendment. Id. at 2172. Therefore, while the brief
statement of the constitutional foundation for the TRCA in
the Senate Report is entitled to deference, it does not
establish that the TRCA is constitutional. Consequently, we
are obliged to examine the scope of the Fourteenth
Amendment and determine whether the TRCA is valid
under the amendment's enforcement section.
The Due Process Clause of Fourteenth Amendment
provides that no state shall "deprive any person of life,
liberty, or property, without due process of law." U.S.
CONST. amend. 14, S 1. Sectionfive of the Fourteenth
Amendment gives Congress the power "to enforce, by
appropriate legislation, the provisions of this article." U.S.
CONST. amend. 14, S 5. The Court long has recognized that
Congress' power to legislate under section five is quite
broad:
Whatever legislation is appropriate, that is, adapted to
carry out the objects the amendments have in view,
whatever tends to enforce submission to the
prohibitions they contain, and to secure to all persons
the enjoyment of perfect equality of civil rights and the
equal protection of the laws against State denial or
invasion, if not prohibited, is brought within the
domain of congressional power.
Ex Parte Virginia, 100 U.S. 339, 345-46 (1879). However,
Congress' power under section five of the Fourteenth
Amendment is not without boundaries. As the Court held
in Oregon v. Mitchell, 400 U.S. 112, 91 S.Ct. 260 (1970):
As broad as the congressional enforcement power is, it
is not unlimited. Specifically, there are at least three
11
limitations upon Congress' power to enforce the
guarantees of the Civil War Amendments. First,
Congress may not by legislation repeal other provisions
of the Constitution. Second, the power granted to
Congress was not intended to strip the States of their
power to govern themselves . . . . Third, Congress may
only `enforce' the provisions of the amendments and
may only do so by `appropriate legislation.'
400 U.S. at 128-29, 91 S.Ct. at 266-67. The Court also
recently has cautioned that "Congress does not enforce a
constitutional right by changing what the right is. It has
been given the power `to enforce,' not the power to
determine what constitutes a constitutional violation." City
of Boerne, 117 S.Ct. at 2164. Therefore, while Congress has
broad remedial power under the Fourteenth Amendment, it
does not have a basis for enacting substantive, non-
remedial measures.
Because of this limitation, for a law to be a valid
mechanism to enforce the Due Process Clause, it must not
create new substantive rights, but instead must provide a
method of protecting against violations of those rights
already extant. The Due Process Clause itself sets out the
boundaries of what rights it protects: the conduct must
involve action by a state; it must deprive an individual of
life, liberty or property; and the deprivation must occur
without due process of law. These three requirements are at
the core of what the TRCA must remedy to be valid under
the Fourteenth Amendment.
However, for the TRCA to be a valid enforcement of the
Due Process Clause under section five, it does not need to
protect only against constitutional violations. Rather, the
TRCA can serve the broader purposes of the Due Process
Clause. The Court in City of Boerne, reiterated this notion:
"Legislation [enacted under section five of the Fourteenth
Amendment] which deters or remedies constitutional
violations can fall within the sweep of Congress'
enforcement power even if in the process it prohibits
conduct which is not itself unconstitutional and intrudes
into `legislative spheres of autonomy previously reserved to
the States.' " Id. at 2163 (quoting Fitzpatrick v. Bitzer, 427
U.S. at 455, 96 S.Ct. at 2671). Yet even though the
12
violations against which it protects do not have to rise to
the level of constitutional violations, the TRCA must further
the goals of protecting property from state action
undertaken without due process of law, because the
congressional enforcement power under the Fourteenth
Amendment is not unlimited. See City of Boerne, 117 S.Ct.
at 2163.
In deciding that the TRCA is not valid as applied in this
case under the Fourteenth Amendment, the district court
concluded that the case did not involve a property right;
therefore, the TRCA did not further the purposes of the
Fourteenth Amendment. See College Sav. Bank, 948 F.
Supp. at 426-28. The district court first determined that
the false advertising prong of the Lanham Act invoked by
CSB "essentially protects the `right to be free from false
advertising.' " Id. at 426. This right, according to the district
court, was not property for purposes of the Fourteenth
Amendment; in fact, the district court could notfind any
precedent "even discussing whether the right to be free of
unfair competition is `property.' " Id. at 426-27 n.27. The
district court indicated that "we are unaware of any
authority suggesting that Congress may, by simplefiat,
abruptly declare that a simple statutory cause of action,
which traditionally has not been understood to involve any
kind of property, now encompasses a `property right' to
which the Fourteenth Amendment applies." Id. at 427.
Therefore, according to the district court, because a
property right was not involved, Congress did not have the
power under the Fourteenth Amendment to enact the TRCA
as it applied to this case.
In our examination of the TRCA, we, too, focus on the
question of whether the TRCA protects a property right
recognized under the Fourteenth Amendment. The tort of
unfair competition created by the Lanham Act protects
against certain harms involving improper interference with
business prospects. See 15 U.S.C. S 1127; see also AT & T
Co. v. Winback and Conserve Program, Inc., 42 F.2d 1421,
1428 (3d Cir. 1994) (noting that the Lanham Act contains
language that " `creates a federal cause of action for unfair
competition.' ") (citations omitted). CSB contends that this
tort of unfair competition protects intangible property
13
rights; therefore, the TRCA should be seen to protect
property as defined under the Fourteenth Amendment. The
tort of unfair competition found in the Lanham Act does
protect some intangible property rights, but no such
intangible property is involved in the present case. See W.
Page Keeton et al., Prosser and Keeton on the Law of Torts
S 130, at 1015 (5th ed. 1984) (citing trade marks,
copyrights, and patents as intangible property rights that
the tort of unfair competition involves). Instead, CSB's
Lanham Act claim concerns allegedly false statements
about a competitor's own product. The only cognizable
property right that could be involved would be a right to be
free of false advertising, a right that is not an intangible
property right protected under the Fourteenth Amendment.
The Supreme Court has recognized that the Fourteenth
Amendment protects some categories of intangible property
rights. See, e.g., Tulsa Prof 'l Collection Serv. v. Pope, 485
U.S. 478, 485, 108 S.Ct. 1340, 1345 (1988) (in recognizing
an unsecured claim against the estate, the Court wrote:
"Little doubt remains that such an intangible interest is
protected by the Fourteenth Amendment."); Logan v.
Zimmerman Brush Co., 455 U.S. 422, 430, 102 S.Ct. 1148,
1155 (1982) ("[T]he types of interests protected as `property'
are varied and, as often as not, intangible, relating `to the
whole domain of social and economic fact.' ") (citations
omitted); Paul v. Davis, 424 U.S. 693, 710, 96 S.Ct. 1155,
1165 (1976) ("[T]here exists a variety of interests which are
difficult of definition but are nevertheless comprehended
within the meaning of either `liberty' or `property' as meant
in the Due Process Clause."). However, not all intangible
rights have been deemed to be property under the
Fourteenth Amendment, see Paul v. Davis, 424 U.S. at 712,
96 S.Ct. at 1166 (holding that a person's reputation was
not intangible property covered by Fourteenth Amendment),
and the right to be free from unfair advertising is not one
of the protected property interests. While infringement on
such a right might give rise to a cause of action, the right
does not amount to "property" within the meaning of the
Fourteenth Amendment.4
_________________________________________________________________
4. CSB asserts that the Supreme Court recognized that the tort of unfair
competition involved protected intangible property rights in International
14
We also reject CSB's contention that the TRCA
necessarily involves a protected property right under the
Fourteenth Amendment on the basis that it attempts to
protect businesses from harm. Clearly, a business is an
established property right entitled to protection under the
Fourteenth Amendment. See, e.g., Duplex Printing Press Co.
v. Deering, 254 U.S. 443, 465, 41 S.Ct. 172, 176 (1920)
(finding that a "business . . . is a property right, entitled to
protection against unlawful injury or interference .. .");
United States v. Tropiano, 418 F.2d 1069, 1076 (2d Cir.
1969) ("The right to pursue a lawful business including the
solicitation of customers necessary to the conduct of such
business has long been recognized as a property right
within the protection of the Fifth and Fourteenth
Amendments to the Constitution.") (citations omitted);
Small v. United States, 333 F.2d 702, 704 (3d Cir. 1964)
("The right to pursue a lawful business or occupation is a
right of property which the law protects against intentional
and unjustifiable interference. A cause of action based
upon such an interference is analogous to one based upon
unlawful interference with existing contracts, and is
governed by the same principles.") (citations omitted).
Nevertheless, while a business is a property right, the fact
that CSB operates a business does not lead necessarily to
the conclusion that the TRCA as applied in this case
protects property rights.
For instance, in Gentry v. Howard, 365 F. Supp. 567
(W.D. La. 1973), an operator of an ambulance service sued
_________________________________________________________________
News Serv. v. Associated Press, 248 U.S. 215, 236, 39 S.Ct. 68, 71
(1918) ("[T]he right to acquire property by honest labor or the conduct of
a lawful business is as much entitled to protection as the right to guard
property already acquired. . . . It is this right that furnishes the basis
of
the jurisdiction in the ordinary case of unfair competition.") (citations
omitted). However, the quoted language concerned the question of
whether the courts should exercise equity jurisdiction over the dispute;
the Court needed to determine if a right sufficient to sustain such
jurisdiction had been violated and if a harm had occurred. Thus, while
the opinion does discuss property rights and the tort of unfair
competition, the Court did not determine whether the tortious actions
injured a property right worthy of protection under the Fourteenth
Amendment. The Court merely determined that an injury to a specific
right had occurred.
15
the mayor of the City of Monroe in part on due process
grounds, because the city began operating a competing
ambulance service. The district court held that this action
by the city did not amount to a due process violation,
because no deprivation of property had occurred, within the
meaning of the Fourteenth Amendment. Even though the
city clearly was competing with the private business which
suffered from this competition, this harm did not rise to the
level of a deprivation of property under the Fourteenth
Amendment. See also Hegeman Farms Corp. v. Baldwin,
293 U.S. 163, 170, 55 S.Ct. 7, 9 (1934) ("The Fourteenth
Amendment does not protect a business against the
hazards of competition."); cf. Reich v. Beharry, 883 F.2d
239, 242 (3d Cir. 1989) ("Every breach of contract by
someone acting under color of state law [does not]
constitute[ ] a deprivation of property for procedural due
process purposes."). As Gentry illustrates, just because the
state's actions impact on a private business does not mean
that this action somehow infringes on the Fourteenth
Amendment rights of the private individual.
If a state's conduct impacting on a business always
implicated the Fourteenth Amendment, Congress would
have almost unrestricted power to subject states to suit
through the exercise of its abrogation power. Congress
could pass any law that tangentially affected the ability of
businesses to operate and then create causes of action
against the states in federal court if they infringed on those
federally created rights. This result would be unacceptable
and would conflict directly with the strict limits on
Congress' powers to abrogate a state's Eleventh
Amendment immunity. Thus, because this case does not
involve a property interest protected by the Fourteenth
Amendment, the TRCA, as applied in this case, is an
unconstitutional exercise of Congress' powers.
We carefully have confined our discussion by holding
that the TRCA is unconstitutional as applied "in this case."
We have done so for two reasons. First, as the district court
correctly noted, the false advertising prong of the Lanham
Act implicated in this litigation is "separate and distinct
from the trademark infringement prong." College Sav. Bank,
948 F. Supp. at 426 n.25. Second, the false advertising
16
prong of the Lanham Act not only proscribes
misrepresentations regarding a person's own goods or
services, but it also forbids misrepresentations about a
competitor's goods or services. 11 U.S.C. S 1125 (a)(1)(B).
Since the present case only involves allegations that Florida
Prepaid misrepresented its own product, the second part of
the false advertising prong is not implicated. Therefore,
because the scope of the allegations in this case is so
narrow, we express no opinion as to whether the TCRA may
be applied constitutionally in a case involving a trademark
infringement or involving a misrepresentation about a
competitor's goods or services.
C. Constructive Waiver of
Eleventh Amendment Immunity
CSB also contends that Florida Prepaid has
constructively waived its Eleventh Amendment immunity on
two different grounds: the Parden doctrine and the conduct
of Florida Prepaid in this litigation. We reject each of these
arguments.
1. The Parden Doctrine
The high point of Supreme Court jurisprudence of the
doctrine of constructive consent was Parden v. Terminal Ry.
of Ala. State Docks Dep't, 377 U.S. 184, 84 S.Ct. 1207. See
Erwin Chemerinsky, Federal Jurisdiction 408 (2d ed. 1994).
In Parden, railroad workers sued a railroad, wholly owned
and operated by the State of Alabama, to recover damages
under the Federal Employers' Liability Act ("FELA"). See
377 U.S. at 184-85, 84 S.Ct. at 1209. Alabama defended
the suit on the basis of the Eleventh Amendment. The
Court focused on two questions: whether Congress
intended the FELA to apply to the states, and whether it
had the power to do so. First, by its language, the FELA
applied to "every" common carrier. Id. at 187, 84 S.Ct. at
1210. The Court held that because Congress did not
distinguish between state and privately operated common
carriers, Congress must have intended the Act to apply to
state operated common carriers. Turning to the second
question, the Court held that the constitutional basis for
17
the enactment of FELA was the Interstate Commerce
Clause. See id. at 190-91, 84 S.Ct. at 1211-12. The Court
then reasoned that because "the States surrendered a
portion of their sovereignty when they granted Congress the
power to regulate commerce," the clause could be used as
a basis to waive a state's Eleventh Amendment immunity.
Id. at 191, 84 S.Ct. at 1212. Because Alabama voluntarily
had operated the railroad after the enactment of FELA, the
Court held that the state had consented to the suit in
federal court under the Act. See id. at 192, 84 S.Ct. at
1213. Therefore, Alabama was deemed to have waived its
Eleventh Amendment immunity in Parden.
In the years following Parden, the Court has modified and
partially overruled it. The first significant modification
occurred in Employees of the Dep't of Pub. Health & Welfare
v. Dep't of Pub. Health & Welfare, 411 U.S. 279, 93 S.Ct.
1614 (1973). That case involved a suit by state hospital and
training school employees for overtime compensation under
the Fair Labor Standards Act ("FLSA"). See id. at 280-81,
93 S.Ct. at 1616. The State of Missouri defended the suit
on Eleventh Amendment grounds, and the Court applied
the same two-part test found in Parden. First, it found that
Congress clearly intended to bring employees of "hospitals
and related institutions" under the Act. Id. at 283, 93 S.Ct.
at 1617. Second, the Court recognized that the basis for the
enactment of the FLSA was the Interstate Commerce
Clause. See id. at 282, 93 S.Ct. at 1617. However, the
Court distinguished Parden from Employees. The Court
explained that the State of Alabama in Parden was involved
in an "area where private persons and corporations
normally ran the enterprise." Id. at 284, 93 S.Ct. at 1617.
In Employees the institutions were state hospitals and
training schools which were not operated for profit, and
instead were of an integral state concern. See id. Because
of their importance to the state government, the Court
found that Congress could not abrogate Missouri's Eleventh
Amendment immunity under the FLSA in that case. In
Employees, therefore, the Court created the important
government function exception to Parden. Under this
exception, a state cannot be deemed to have waived its
immunity if it is engaged in an important or core
government function.
18
The Court restricted the scope of Parden further in
Edelman v. Jordan, 415 U.S. 651, 94 S.Ct. 1347 (1974). In
challenging Illinois' administration of the Aid to the Aged,
Blind, and Disabled ("AABD") welfare program, the plaintiffs
in that class action asserted that officials from the State of
Illinois had waived the state's Eleventh Amendment
immunity in welfare suits by participating in and receiving
funds from the federal welfare program. Stressing that
"[c]onstructive consent is not a doctrine commonly
associated with the surrender of constitutional rights," the
Court held that "[t]he mere fact that a State participates in
a program through which the Federal Government provides
assistance for the operation by the State of a system of
public aid is not sufficient to establish consent on the part
of the State to be sued in the federal courts." Id. at 673, 94
S.Ct. at 1360-61. Thus, the Court rejected the waiver
argument in that case.
In 1987, the Court again pared back Parden in Welch v.
Texas Dep't of Highways and Pub. Transp., 483 U.S. 468,
107 S.Ct. 2941. In Welch, an employee of the Texas
Department of Highways and Public Transportationfiled
suit under the Jones Act against the state and the
department to recover damages for injuries she incurred
while working on a ferry dock. See id. at 470-71, 107 S.Ct.
at 2944. The Jones Act remedies were available to"[a]ny
seaman who shall suffer personal injury in the course of
his employment." The employee argued that the State of
Texas was an employer within this section. Id. at 475, 107
S.Ct. at 2947. In considering whether Congress intended to
apply the Act to the states, the Court found that the line of
cases it had decided since Parden "required an unequivocal
expression that Congress intended to override Eleventh
Amendment immunity. Accordingly, to the extent that
Parden v. Terminal Railway, . . . is inconsistent with the
requirement that an abrogation of Eleventh Amendment
immunity by Congress must be expressed in unmistakably
clear language, it is overruled." Id. at 478, 107 S.Ct. at
2948 (citations omitted). Thus, the Court changed the first
prong of the Parden test to require a clear statement of
congressional intent. Because it found no such intent in
the Jones Act, the Court declined to hold that Texas had
waived its immunity.
19
Therefore, the Parden doctrine holds that a state's
Eleventh Amendment immunity can be constructively
waived if: (1) Congress enacts a law providing that a state
will be deemed to have waived its Eleventh Amendment
immunity if it engages in the activity covered by the federal
legislation; (2) the law does so through a clear statement
that gives notice to the states; (3) a state then engages in
that activity covered by the federal legislation; and (4) the
activity in question is not an important or core government
function.
In the present case, at least assuming that CSB can
establish the elements of its case, the first three
requirements of the Parden doctrine clearly have been or
will be met. Although the TRCA does not mention
specifically prepaid tuition programs, the Act declares that
if a state or its instrumentality chooses to engage in a
proprietary activity that potentially falls under the Lanham
Act, it can be held liable in federal court for violations of
that Act. See 15 U.S.C. S 1122. Moreover, Florida Prepaid
continued its operations after the enactment of the TRCA.
However, even though the first three requirements may be
met, if the important government function exception applies
to the present case, Florida Prepaid's activities would not
waive its Eleventh Amendment immunity.
The district court determined that Florida Prepaid served
a "role traditionally undertaken by state governments --
making available education opportunities," and thus the
Parden doctrine could not be applied as a basis for a
conclusion that Florida Prepaid's activities waived its
Eleventh Amendment immunity. College Sav. Bank, 948 F.
Supp. at 416. The district court recognized that Florida
Prepaid does compete with private businesses, such as
CSB, to provide prepaid tuition plans, but found that factor
not to be dispositive. Instead, the district court focused on
the benefits that Florida Prepaid provides to the education
of Florida citizens. See id. at 417. Because Florida Prepaid
directly furthers the goal of education by providing a
system of financing for college and university education, the
district court found that Florida Prepaid serves an
important government function. We agree with the district
court's determination and conclude that Florida Prepaid is
20
engaged in an important governmental function; therefore,
the Parden doctrine of waiver does not apply to the present
case.
Education is a core function of a state government. See
Brown v. Board of Educ., 347 U.S. 483, 493, 74 S.Ct. 686,
691 (1954) ("Today, education is perhaps the most
important function of state and local governments."). The
Appellants do not dispute that education is an important
government function. Instead, they seek to distinguish the
goal of education from the function that Florida Prepaid
performs. They argue that Florida Prepaid does not provide
education directly; instead, it provides a means through
which individuals can save for the costs of college tuition
with an investment program. According to the Appellants,
individuals traditionally have used a variety of investments
to fulfill this purpose, and Florida Prepaid can be seen as
merely an additional, competing means to meet the costs of
college.
We reject the Appellants' narrow conception of education
as a core government function. Education encompasses
more than classroom teaching; instead, the core function of
education can include the provision of education-related
services as well as direct classroom teaching. See, e.g.,
Skehan v. State Sys. of Higher Educ., 815 F.2d 244, 249 (3d
Cir. 1987) (holding that the Pennsylvania State System of
Higher Education is a state agency entitled to Eleventh
Amendment immunity). Furthermore, in addition to states
providing elementary and secondary schools for their
citizens, they also long have provided facilities for college
and graduate levels of education. In providing these higher
levels of education, states routinely have charged
discounted tuition fees to their own citizens. Yet even with
such discounts, the cost of education can be prohibitive.
The sole purpose of Florida Prepaid is to help individuals
meet this expense of higher education. See Fla. Stat. ch.
240.551(1) (1997). As the statute creating the Florida
Prepaid Postsecondary Education Expense Program states:
The Legislature recognizes that education opportunity
at the postsecondary level is a critical state interest. It
further recognizes that educational opportunity is best
ensured through the provision of postsecondary
21
institutions that are geographically and financially
accessible. Accordingly, it is the intent of the
Legislature that a program be established through
which many of the costs associated with postsecondary
attendance may be paid in advance . . . .
Id.
Although private businesses such as CSB operate similar
programs, Florida Prepaid nevertheless serves the goal of
ensuring that higher education is affordable to all of its
citizens. Merely because the state competes with private
enterprises does not mean that it is not performing a core
government function. For instance, even in the context of
classroom education, private schools operate on a
competitive basis with public schools on all levels:
elementary, high school, and university.
The Florida legislature specifically authorized and created
Florida Prepaid to facilitate the education of its citizens.
The core government function of education does not
necessarily only embody the actual teaching of individuals;
it is a broader function which can incorporate actions that
involve related aspects to this overall goal.5 Florida Prepaid
serves the important government interest of education by
making it affordable to its citizens; therefore, the Parden
doctrine does not apply to the present case and does not
_________________________________________________________________
5. In addressing a similar issue, the Court of Appeals for the Sixth
Circuit has decided that an educational trust fund operated by the State
of Michigan performs a public function. See Michigan v. United States,
40 F.3d 817 (6th Cir. 1994). The Michigan Educational Trust is a state
agency created to enter into advance tuition payment contracts with
individuals to provide tuition prepayments for college education. See id.
at 820-21. In determining whether the entity is subject to tax by the
United States, the court of appeals concluded that:
[E]ncouraging higher education by helping provide the means for
attendance at Michigan's public colleges and universities--the
basic
function for which the education trust was established by the
Michigan legislature--is at least as much a `public function' as
building and operating bridges and tunnels.
Id. at 825. Based on this conclusion, the court held that the entity has
tax-exempt status. See id. at 829.
22
supply a basis for a conclusion that Florida Prepaid has
waived its Eleventh Amendment immunity.
As we have indicated, Florida Prepaid has argued and the
district court has held that Seminole Tribe implicitly
overruled Parden. See College Sav. Bank, 948 F. Supp. at
420. We, however, do not reach this difficult question
because we have no need to do so. In our view, a court of
appeals should be reluctant to hold that the Supreme Court
implicitly has overruled its own decision when the Court
had an opportunity to overrule the decision explicitly and
did not do so. Thus, we view our methodology as in keeping
with the respect which we must pay to the Supreme Court.
2. Waiver of Immunity by Conduct in Litigation
Finally, CSB contends that Florida Prepaid has waived its
Eleventh Amendment immunity through its appearance in
this litigation, by filing a counterclaim, and by failing
initially to raise its Eleventh Amendment immunity defense.
The district court rejected this argument and found that
Florida Prepaid did not waive its immunity defense. See
College Sav. Bank, 948 F. Supp. at 414. We will affirm the
district court's determination of this matter and hold that
Florida Prepaid raised its defense in a timely manner.
A state can waive an Eleventh Amendment immunity
defense through a voluntary appearance in litigation
against it in federal court. See Clark v. Barnard, 108 U.S.
436, 447-48, 2 S.Ct. 878, 883 (1883). In determining
whether there has been a waiver, courts have examined the
extent to which a state has participated in the lawsuit and
whether it has defended the case on its merits. See Fordyce
v. Seattle, 55 F.3d 436, 441 (9th Cir. 1994) (holding that a
state could waive immunity by a voluntary appearance and
defense on the merits); Hankins v. Finnel, 964 F.2d 853,
856 (8th Cir. 1992) (recognizing the possibility of waiver
through an appearance and defense on the merits); 995
Fifth Ave. Assoc., L.P. v. New York State Dep't of Taxation
and Fin., 963 F.2d 503, 507-08 (2d Cir. 1992) (holding New
York's immunity to be waived through its participation in
the lawsuit); Paul N. Howard Co. v. Puerto Rico Aqueduct
Sewer Auth., 744 F.2d 880, 886 (1st Cir. 1984) (finding a
23
waiver of immunity by a party's appearance and filing of a
counterclaim and a third-party complaint); Vecchione v.
Wohlgemuth, 558 F.2d 150, 158-59 (3d Cir. 1977) (holding
a state to have waived immunity by not raising the issue
until after the final judgment).
Florida Prepaid's participation in this litigation did not
waive its Eleventh Amendment immunity. Because the
immunity issue "sufficiently partakes of the nature of a
jurisdictional bar," Edelman v. Jordan, 415 U.S. at 678, 94
S.Ct. at 1363, it is an issue that may be raised at any time
during the pendency of the case. See Florida Dep't Of State
v. Treasure Salvors, Inc., 458 U.S. 670, 683 n.18, 102 S.Ct.
3304, 3314 n.18 (1982). Merely because a state appears
and offers defenses on the merits of the case, it does not
automatically waive Eleventh Amendment immunity. See
id.; see also Ford Motor Co. v. Dep't of Treasury of State of
Ind., 323 U.S. 459, 466-67, 65 S.Ct. 347, 351-52 (1945)
(considering Eleventh Amendment immunity for thefirst
time on appeal); Mascheroni v. Board of Regents of the Univ.
of Cal., 28 F.3d 1554, 1560 (10th Cir. 1994) (holding that
a state does not waive immunity merely by its appearance
in a suit).
The critical reason behind Florida Prepaid's delay in
asserting an Eleventh Amendment defense was the timing
of the Supreme Court's decision in Seminole Tribe. At the
beginning of the litigation, the abrogation rule of Union Gas
precluded an Eleventh Amendment immunity defense by
Florida Prepaid.6 However, with Seminole Tribe, the
successful assertion by Florida Prepaid of an immunity
defense became a reasonable possibility. Therefore,
following that decision, Florida Prepaid asserted its
Eleventh Amendment immunity.7 Given this change in the
_________________________________________________________________
6. The constitutionality of the TRCA was not in question prior to
Seminole Tribe, because the TRCA and the underlying Lanham Act had
clear foundations in the Commerce Clause. Union Gas had permitted
Congress to abrogate states' immunity to suit in federal court on
Commerce Clause grounds. With Seminole Tribe, this basis was
eliminated and the only foundation for abrogation by Congress is section
five of the Fourteenth Amendment.
7. The Supreme Court decided Seminole Tribe on March 27, 1996.
Florida Prepaid first informed the district court of its intention to move
for dismissal on Eleventh Amendment grounds on April 8, 1996. See
Appellee's br. at 39 n.16.
24
law and the precedent for allowing participation in lawsuits
without waiving the immunity, we determine that Florida
Prepaid did not waive its Eleventh Amendment immunity
through its participation in this litigation.
IV. CONCLUSION
We will affirm the district court's dismissal of CSB's
Lanham Act claim by order entered December 16, 1996.
Although congressional actions are entitled to much
deference, Congress cannot usurp the powers of the states.
The Supreme Court in Seminole Tribe placed clear
limitations on Congress' power to abrogate a state's
Eleventh Amendment immunity; the TRCA exceeds these
restrictions as applied to the present case, and thus we
conclude that it is unconstitutional. Furthermore, we will
affirm the district court's determination that Florida
Prepaid did not waive its immunity either under Parden or
through its participation in this litigation. Therefore,
because the Eleventh Amendment applies to bar this
lawsuit against Florida Prepaid in federal court, we will
affirm the district court's dismissal of CSB's Lanham Act
suit in its entirety.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
25