Alabama Space Science Exhibit Commission v. Odysseia Co Ltd

UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ALABAMA

NORTHEASTERN DIVISION

ALABAMA SPACE SCIENCE }

EXHIBIT COMMISSION d/b/a }

U.S. SPACE & ROCKET CENTER, }

}

Plaintiff, } Case No.: 5:14-cv-00413-MHH

}

v. }

}

ODYSSEIA CO. LTD., }

}

Defendant. }

MEMORANDUM OPINION

This case has been to the moon and back. After lengthy briefing on repeated

motions to remand (three so far) and multiple mediations, including one before a

magistrate judge, the case now has reached the dispositive motion stage.1 In its

summary judgment motion, the Alabama Space Science Exhibit Commission –

ASSEC, for short – renews its challenge to federal jurisdiction. ASSEC reiterates

its argument that it is an arm of the State of Alabama and hence not a “citizen of a

State” for purposes of diversity jurisdiction under 28 U.S.C.§ 1332(a)(2). ASSEC

rests its updated remand argument on evidence that is new to the record in this case

but that has been available to ASSEC since it filed its first motion to remand.

1 See Docs. 8, 20, 35, 69, 91.

ASSEC also adds to its legal authority in support of its request for remand a recent

decision from the Alabama Supreme Court. Because a district court must examine

its subject matter jurisdiction at every stage of a case, the Court will evaluate

ASSEC’s supplemental evidence and authority and reconsider its rulings on subject

matter jurisdiction.2

PROCEDURAL BACKGROUND

1. ASSEC’s First Motion to Remand

In its first motion to remand, filed in 2014, ASSEC argued that Odysseia

removed this action improperly because the amount in controversy in this action

does not meet the $75,000 jurisdictional threshold in 28 U.S.C. § 1332(a). (Doc. 8).

In its initial remand motion, ASSEC did not “dispute that diversity of citizenship

exists in this matter.” (Doc. 8, p. 2). During a January 12, 2015 hearing regarding

the amount in controversy, ASSEC stated: “we’re ready to just move forward with

this case . . . We think it’s time to get to the merits.” (Doc. 30, p. 2). The Court

2 See RES-GA Cobblestone, LLC v. Blake Const. & Dev., LLC, 718 F.3d 1308, 1313 (11th Cir.

2013) (“Federal courts operate under a continuing obligation to inquire into the existence of subject

matter jurisdiction whenever it may be lacking.”).

rejected ASSEC’s challenge to the amount in controversy and denied ASSEC’s

motion to remand. (Docs. 28, 30).

2. ASSEC’s Second Motion to Remand

In its second motion to remand, filed in 2015, ASSEC argued that the Court

lacks subject matter jurisdiction because ASSEC is an arm of the state and therefore

is not a citizen for purposes of diversity jurisdiction. (Doc. 35). The Court issued

an order in which the Court evaluated the evidence available to it concerning

ASSEC’s relationship to the State of Alabama and concluded that ASSEC is not an

arm of the state. (Doc. 52). The Court held that ASSEC is a citizen of Alabama for

purposes of diversity jurisdiction and that because Odysseia is a citizen of a foreign

state, the parties to this action are completely diverse. The Court denied ASSEC’s

second motion to remand. (Doc. 52, pp. 14-15).

3. ASSEC’s Third Motion to Remand

In its third motion to remand, filed in 2017, ASSEC argued that in an

unpublished opinion in Ingalls v. U.S. Space and Rocket Center, 679 Fed. Appx. 935

(11th Cir. 2017), the Eleventh Circuit Court of Appeals implied that ASSEC is a

state agency. (Doc. 69, pp. 1-2). The Ingalls decision did not alter this Court’s

analysis of ASSEC’s citizenship because in Ingalls, the Eleventh Circuit did not

consider the factors necessary to evaluate whether ASSEC is an arm of the state.

(Doc. 72, p. 3). Based on the evidence then in the record, the Court maintained its

finding that ASSEC is not an arm of the State of Alabama. The Court denied

ASSEC’s third motion to remand. (Doc. 72, p. 4).

4. ASSEC’s Fourth Motion to Remand

In its motion for summary judgment, on “a more developed record,” ASSEC

argues again that it is an arm of the State of Alabama and therefore is not a “‘citizen

of a State’ for purposes of diversity jurisdiction under 28 U.S.C. § 1332(a)(2).”

(Doc. 89, p. 1). The Court will discuss all of the jurisdictional evidence, old and

new (again, new to the Court, not to ASSEC), as it evaluates the factors that govern

its assessment of ASSEC’s status for purposes of federal jurisdiction.

JURISDICTIONAL ANALYSIS

As the Court has explained in previous orders, “if a party is deemed to be ‘an

arm or alter ego of the State,’ then diversity jurisdiction must fail;” however, a

“public entity or political subdivision of a state, unless simply an ‘arm or alter ego

of the State’” is “a citizen of the state for diversity purposes.” Univ. of S. Ala. v. Am.

Tobacco Co., 168 F.3d 405, 412 (11th Cir. 1999) (quoting Moor v. Alameda Cty.,

411 U.S. 693, 717-18 (1973)). To determine whether ASSEC is an “arm of the

state,” the Court must consider: “(1) how the state law defines the entity; (2) the

degree of state control over the entity; (3) where the entity derives its funds; and (4)

who is responsible for judgments against the entity.” Nichols v. Ala. State Bar, 815

F.3d 726, 732 (11th Cir. 2016); see also Lightfoot v. Henry Cty. School Dist., 771

F.3d 764, 769 (11th Cir. 2014); Manders v. Lee, 338 F. 3d 1304, 1309 (11th Cir.

2003). The Court discusses each factor in turn.

1. Alabama Law Regarding ASSEC’s Status

The Court looks again to the Alabama Code and to decisions from the

Alabama Supreme Court to consider how Alabama law characterizes ASSEC.

In its 2016 order denying ASSEC’s motion to remand, the Court stated that it

had located no opinion in which an Alabama state court had determined whether

ASSEC is an arm of the state. (Doc. 52, pp. 3-4). That is still true, but the Court

has located dicta in which the Alabama Supreme Court indicated that ASSEC’s sister

entity, the Alabama Space Science Exhibit Finance Authority, is not an arm of the

State of Alabama. In Hospital Systems, Inc. v. Hill Rom, Inc., the Alabama Supreme

Court held that the Health Care Authority of Athens and Limestone County is an

entity separate from the State of Alabama even though the Health Care Authority

bears some of the characteristics of an arm of the state. Hospital Systems, Inc. v.

Hill Rom, Inc., 545 So. 2d 1324, 1326 (Ala. 1989). In reaching its decision, the

Alabama Supreme Court analogized the Health Care Authority to the Alabama

Space Science Exhibit Finance Authority.

The Alabama Supreme Court discussed the Health Care Authority’s status as

part of the court’s consideration of the extent to which the Health Care Authority

had to comply with Alabama’s Competitive Bid Law. The provision of the bid law

at issue in Hill Rom provided:

All expenditures of funds of whatever nature for labor, services or

work, or for the purchase of materials, equipment, supplies or other

personal property made by ... the county commissions and the

governing bodies of the municipalities of this State ... shall be made

under contractual agreement entered into by free and open competitive

bidding, on sealed bids, to the lowest responsible bidder....

545 So. 2d at 1326 (emphasis in Hill Rom). The Alabama Supreme Court

determined that the Alabama Legislature separately incorporated the Health Care

Authority and other public entities like the Alabama Space Science Exhibit Finance

Authority so that those entities could function independent of state and local

authorities. The Alabama Supreme Court explained that the Health Care Authority,

which the Supreme Court referred to as the “Hospital,” was:

incorporated pursuant to the provisions of Code 1975, § 22–21–310 et

seq. It is “a separate entity from the state and from any local political

subdivision, including a city or county within which it is organized”

(Opinion of the Justices, 254 Ala. 506, 511, 49 So. 2d 175, 180 (1950));

therefore, it is not one of the governmental entities within the

contemplation of the prohibitions of § 22 of our state constitution or §

41–16–50(a). Furthermore, the § 22–21–335 exemption would apply to

the Hospital even if the directors of the Hospital’s board were appointed

by either the governing body of the City of Athens or that of Limestone

County. Alabama State Florists Association v. Lee County Hospital

Bd., 479 So. 2d 720 (Ala.1985).

The exemption from the Competitive Bid Law enjoyed by the Hospital

is “part and parcel” of legislation creating and maintaining public

authorities in Alabama. See, for example, § 4–3–60 (airport

authorities); § 11–54A–17 (downtown redevelopment authorities); §

41–10–212 (Alabama Shakespeare Festival Theatre Finance

Authority); and § 41–10–331 (Alabama Space Science Exhibit Finance

Authority). The necessity for the services provided by the Hospital and

other health care authorities, as well as the services provided by the

myriad of boards and authorities authorized by our state legislature, is

undisputed.

It is, however, equally true that the governmental entities normally

responsible for providing these services too often lack sufficient funds

to justify the expenditure of city or county tax revenues in these areas.

Thus, the “authority,” through its separate existence, provides the

required service with funds obtained from sources other than the tax

revenues of a governmental entity.

545 So. 2d at 1326 (emphasis added).

The Alabama Supreme Court’s description of the Health Care Authority

applies equally to ASSEC and to its sister entity, the Alabama Space Science Exhibit

Finance Authority or ASSFA. The legislation creating ASSFA states:

It is the intent of the Legislature, by the passage of this article, to

authorize the incorporation of a public corporation for the purposes of

acquiring land, constructing and equipping facilities, leasing such

facilities to [ASSEC] (or others, to the extent provided for herein), and

providing financing therefor, and to vest such corporation with all

powers, authority, rights, privileges and titles that may be necessary to

enable it to accomplish such purposes. This article shall be liberally

construed in conformity with the purpose herein stated.

Ala. Code § 41-10-301. The legislation creating the ASSEC states:

There is hereby created and established a state agency to be known as

the Alabama Space Science Exhibit Commission, which shall be a

public body corporate with all the powers and privileges of a

corporation, for the purpose of providing for and participating in the

management and control of facilities to house and display such visual

exhibits of space exploration and hardware used therefor as may be

made available by the National Aeronautics and Space Administration.

Ala. Code § 41-9-430.3 Like the Health Care Authority in Hill Rom, ASSFA and

ASSEC work in tandem as public corporations to raise money and provide services

to the citizens of Alabama “with funds obtained from sources other than the tax

revenues of a governmental entity.” Hill Rom, 545 So. 2d at 1326.

Toward this end, the Alabama Legislature has conferred on ASSEC broad,

substantial powers that resemble powers held by private corporations. Among other

things, ASSEC may:

• enter contracts with “private individuals, corporations, associations and other

organizations;”

• borrow money “from private sources . . . as may be acceptable to the

commission under such terms and conditions as may be provided by law and,

in order to provide security for the repayment of any such private loans, to

pledge such future revenues from admissions and any other sources;”4

3 See Stallings & Sons, Inc. v. Ala. Bldg. Renovation Fin. Auth., 689 So. 2d 790, 792-93 (Ala. 1997)

(“‘It has been repeatedly held that a public corporation is an entity separate and distinct from the

State, and that debts of such corporation are not debts of the State, within the purview of Section

213.’ Opinion of the Justices, 270 Ala. 147, 148, 116 So. 2d 588 (1959). In Edmonson v. State

Industrial Development Authority, 279 Ala. 206, 210, 184 So. 2d 115, 119 (1966), this Court said:

‘Bonds issued by a public corporation that is a separate entity from the State will not constitute a

new debt of the State within the meaning of Section 213, as amended.’ (Emphasis added.) See also

Knight v. West Alabama Environmental Improvement Auth., 287 Ala. 15, 246 So. 2d 903 (1971).

‘A public corporation is a separate entity from the state and from any local political subdivision.’

Coxe v. Water Works Bd., 288 Ala. 332, 337, 261 So. 2d 12 (1972).”).

4 Significantly, the Alabama Legislature has provided that these private loans would be backed by

ASSEC revenues, not by the State of Alabama. Ala. Code § 41-9-432 (4).

• sell, mortgage, lease, or transfer “any property, franchise, grant, easement,

license or lease or interest therein which it may own and to transfer, assign,

sell, mortgage, convey or donate any right, title or interest which it may have

in any lease, contract, agreement, license or property;”5

• “allocate and expend funds from all donations, income and revenue from any

source whatsoever coming into its treasury for the fulfillment and

accomplishment of its duties and responsibilities in such manner as may be

necessary and appropriate for the perfection of the purposes of this article;”

• and spend ASSEC funds “in the development, operation, promotion and

expansion of the programs and activities of the commission including the

franchising, nationally and internationally, of the United States Space Camp,

a youth science program developed and owned by the commission.”

Ala. Code § 41-9-432 (3), (4), (11), (12), & (15).

The private contracts that ASSEC may enter are contracts like the ones at issue

in this litigation: a $1.75 million contract for the opportunity to obtain a Space

5 Significantly, the Alabama Legislature has provided that ASSEC may own property, franchises,

and licenses, and, as noted below, the Alabama Legislature has provided specifically that ASSEC

owns the Space Camp® program at issue in this litigation. Ala. Code § 41-9-432 (_), (15); see

also Doc. 1-1, p. 3, ¶ 7 (ASSEC complaint alleging that ASSEC holds title to the registered

trademarks at issue in this litigation), and Stallings & Sons, 689 So. 2d at 793 (in determining that

the Alabama Building Renovation Finance Authority was not an arm of the state, the Alabama

Supreme Court weighed the fact that the Authority “holds title to the property it is charged with

maintaining and, in effect, has rights separate from the state, affecting that property and those

rights are subject only to the dissolution of the Authority. The conveyance in Section 41–10–470,

Ala. Code 1975, provides that the Authority ‘shall be invested with all rights and title that the State

of Alabama had in the property conveyed [the real property on which the following buildings are

located: the Alabama State House, the Folsom Administrative Building, the Public Health

Building, the former Judicial Building, the Public Safety Building, the Archives and History

Building, and the State Office Building], thereby, subject to the right of reverter to the state upon

dissolution of the authority.’”). Like ASSEC, ASSFA may “acquire and hold title” to personal

property. Ala. Code § 41-10-307 (5). ASSFA also may “acquire and hold title” to real property.

Ala. Code § 41-10-307 (5).

Camp® license. (Doc. 1-3). ASSEC has described some of its private business

activities this way:

Since the beginning of the Space Camp® and Aviation Challenge®

programs, ASSEC has partnered with groups around the world to bring

the Space Camp® and Aviation Challenge® experiences to youth

outside of the United States. ASSEC licenses the Space Camp® and

Aviation Challenge® trademarks, designs, processes, and materials to

select groups outside of the United States.

(Doc. 1-1, p. 3, ¶ 8). As indicated, ASSEC has its own treasury where, according to

the Alabama Legislature, ASSEC should hold the proceeds from these private

contracts and all other revenues that ASSEC generates. Ala. Code § 41-9-432 (11).

The contract documents at issue in this litigation indicate that if Odysseia had

obtained a Space Camp® license, then the company would have had to make license

payments to ASSEC by direct deposit to an AmSouth bank account in ASSEC’s

name. (Doc. 1-3, p. 10).6

In addition to contract revenues, ASSEC may accept private gifts, grants, and

donations. Ala. Code § 41-9-432 (9). The Alabama Legislature has expressly

authorized ASSFA and ASSEC to convey real property between themselves to

accomplish the overall purpose of housing NASA exhibits, Ala. Code § 41-10-322,

and the Legislature has provided that the statutes authorizing the existence and work

6 Although the Alabama Legislature has not expressly given ASSEC the right to open bank

accounts, the Legislature has empowered ASSFA to do so. Ala. Code § 41-10-307 (10). The

license contract that ASSEC and Odysseia were negotiating indicates that the depository account

that Odysseia would have used is in ASSEC’s name. (Doc. 1-3, p. 10).

of ASSFA and ASSEC should be “construed liberally” to enable the entities to

accomplish the tasks assigned to them, Ala. Code §§ 41-9-439, 41-10-301.

Consistent with the Alabama Supreme Court’s expectations for public

corporations like the Health Care Authority, ASSFA, and ASSEC, ASSEC operates

primarily “with funds obtained from sources other than the tax revenues of a

governmental entity.” Hill Rom, 545 So. 2d at 1326. ASSFA and ASSEC report

their income and expenses jointly. (Doc. 88-11).7 For 2015, less than 3% of

ASSEC/ASSFA’s revenue came from the State of Alabama. More than 80% of

revenue came from “Sales & Charges for Services.” (Doc. 88-11, p. 13). By

directive of the Alabama Legislature, that revenue funds the salaries of the executive

director and other personnel of ASSEC. Ala. Code § 41-9-432 (13) (“The

commission shall fix the compensation of the executive director, and such additional

personnel and such compensation shall be paid from the funds of the commission.”).

Citing Ex parte Greater Mobile Washington Cty. Mental Health-Mental

Retardation Bd., Inc., 940 So. 2d 990 (Ala. 2006), ASSEC argues that its enabling

legislation evidences its status as a state agency because § 41-9-430 incorporates the

term “state agency.” (Compare Doc. 35, p. 3; with Doc. 90, p. 15). In Greater

7 For FY 2015, ASSEC’s accountant prepared joint financial statements for “the Alabama Space

Science Exhibit Commission (a component unit of the State of Alabama), the Alabama Space

Science Exhibit Financial Authority (a component unit of the State of Alabama), and the U.S.

Space & Rocket Center Education Foundation (a nonprofit organization), collectively

ASSEC/ASSFA . . .” (Doc. 88-11, p. 6).

Mobile, the Alabama Supreme Court explained that when a court examines a public

entity’s status, “[w]e have previously noted as pertinent, but not determinative, that

the legislation creating or authorizing the entity in question expressly characterizes

the entity as an agency of the State.” Greater Mobile, 940 So. 2d at 1005 (citing

State Docks Comm’n v. Barnes, 225 Ala. 403 (1932), Deal v. Tannehill Furnace &

Foundry Comm’n, 443 So. 2d 1213 (Ala.1983), Tallaseehatchie Creek Watershed

Conservancy District v. Allred, 620 So. 2d 628 (Ala. 1993), and Stallings & Sons,

Inc. v. Ala. Bldg. Renovation Fin. Auth., 689 So. 2d 790 (Ala. 1997)).

Thus, ASSEC’s enabling statute’s reference to ASSEC as a “state agency” is

“pertinent” to the Court’s analysis but “not determinative.” In Greater Mobile, the

Alabama Supreme Court went on to explain that an entity may not be an arm of the

state, even though the statute creating the entity characterizes the entity as an

“agency of the State.” 940 So. 2d at 1001. What matters, the Alabama Supreme

Court explained, is the “complete relationship” between the State of Alabama and

the entity at issue. Greater Mobile, 940 So. 2d at 1001 (“Having examined ‘the

complete relationship’ between the State and the Authority, the Court concluded that

it was ‘clear that the Authority was created as a separate entity’ and ‘not as an arm

of the State,’ despite the fact that the legislation creating it expressly declared that it

was ‘an agency of the State.’”) (quoting Stallings & Sons, 689 So. 2d at 792); see

also Deal, 443 So. 2d at 1216 (“state agency” label does not determine whether an

entity is an arm of the state).

In Greater Mobile, the Alabama Supreme Court also explained that an entity’s

ability to sue and be sued is “strongly probative” that the Alabama Legislature

intended to create an entity separate from the state. Greater Mobile, 940 So. 2d at

1005. The Alabama Supreme Court stated:

We have held that language in the empowering statute providing that

the subject entity has the power “to sue and to be sued” is strongly

probative of “the intent of the legislature to create a separate entity

rather than an agency or arm of the state,” Stallings & Sons, 689 So. 2d

at 792. We have stated that such language is “incompatible with the

constitutional immunity with which state agencies are cloaked,”

Wassman [v. Mobile County Communications Dist., ]665 So. 2d [941,]

943 [(Ala. 1995)]; Rodgers [v. Hopper,] 768 So. 2d [963,] 967 [(Ala.

2000)].

Greater Mobile, 940 So. 2d at 1005. ASSEC filed this lawsuit; ASSEC is merely

fighting Odysseia’s effort to litigate this matter in federal court rather than state

court. At the request of ASSEC (Doc. 98-1, pp. 7-8), the state Attorney General’s

Office has appointed the law firm that represents ASSEC in this lawsuit. (Doc.

98-1).

ASSEC argues that the Alabama Supreme Court’s recent opinion in Barnhart

v. Ingalls, 2018 WL 6074918 (Ala. Nov. 21, 2018), indicates that the Alabama

Supreme Court views ASSEC as a state agency. (Doc. 99). The argument is

partially accurate and mostly incomplete. In Barnhart, the Alabama Supreme Court

assumed that ASSEC was a state agency; the Alabama Supreme Court did not

examine evidence regarding the status of ASSEC relative to the State of Alabama.

The defendants, officers of ASSEC, argued that they should be absolutely immune

from claims against them in their official capacities for retrospective benefit

payments. Barnhart, 2018 WL 6074918 at *6. The Alabama Supreme Court

explained an action against a state officer in effect is an action against the state if a

result favorable to a plaintiff would “directly affect a contract or property right of

the State,” the state officer “is simply a ‘conduit’” for the recovery of damages from

the State, or “a judgment against the officer would directly affect the financial status

of the State treasury.” Barnhart, 2018 WL 6074918 at *6 (internal citations

omitted); see also Barnhart, 2018 WL 6074918 at *9 (“whether an action nominally

asserted against a State official [is] truly one against the State” often turns partially

or entirely on “whether any damages that might be awarded would flow from the

State”). Had the Alabama Supreme Court examined evidence relating to those three

factors and had that evidence been consistent with the evidence in the record in this

action, the evidence would have revealed that ASSEC’s contract rights belong to

ASSEC, not the State of Alabama (see p. 8 above; Ala. Code § 41-9-432 (3)), and a

judgment against ASSEC for damages would be paid from ASSEC’s treasury, not

from Alabama’s state treasury.

Significantly, in Barnhart, ASSEC has taken the position that “the legislation

pursuant to which the Commission was created [] removed the Commission from

the purview of certain state employment laws, including the benefit statutes.”

Barnhart, 2018 WL 6074918 at *2. When the Alabama Department of Examiners

of Public Accounts told ASSEC that the it (ASSEC) had not complied with state law

concerning longevity bonuses and paid holidays, ASSEC notified the Department of

Examiners that it disagreed with the audit findings, and ASSEC refrained from

providing longevity bonuses or paid holidays. Barnhart, 2018 WL 6074918 at *2.

Barnhart is a class action by current and former ASSEC employees who hope to

compel ASSEC to provide the benefits that the Department of Examiners identified.8

In sum, both the relevant provisions of the Alabama Code and Alabama case

law support the conclusion that ASSEC is not an arm of the Stare of Alabama.

2. ASSEC Operates with Very Little State Control

For the most part, ASSEC operates like a private corporation. As noted above,

ASSEC owns the Space Camp® program. Ala. Code § 41-9-432 (15). ASSEC

8 In that regard, Alabama Code § 41-9-437(13) states that ASSEC’s “executive director and such

additional personnel shall not be subject to the provisions of the state Merit System Act; provided,

however, that they shall be eligible for participation in the state health insurance plan and benefits

as provided in Sections 36-29-1 through 36-29-12, and they shall be eligible for participation in

the State Employees’ Retirement System under the provisions of Section 36-27-6 governing

counties, cities, towns and other quasi-public organizations of the state.” The Department of

Examiners cited Alabama Code § 36-6-11(a) for the proposition that ASSEC must pay annual

longevity bonuses. Barnhart, 2018 WL 6074918 at *1. Alabama Code § 41-9-437(13) does not

mention Alabama Code § 36-6-11(a).

franchises that program nationally and internationally. Ala. Code § 41-9-432 (15).

ASSEC advertises its products “within and without the state.” Ala. Code § 41-9-436

(1). As noted above and in previous opinions, ASSEC can acquire, sell, convey,

transfer, mortgage, lease, or donate property in its own name without approval from

the State of Alabama. (Doc. 52, p. 10). “All revenue bonds issued by the

commission shall be solely and exclusively the obligations of the commission and

shall not create an obligation or debt of the state . . .” Ala. Code § 41-9-435.

According to the ASSEC/ASSFA financial statement for fiscal years 2015 and 2016,

“ASSEC/ASSFA prepares an internal operations budget for management purposes,

which is not subject to state approval.” (Doc. 88-11, p. 23). The financial statement

explains that in preparing the budget for fiscal year 2016, ASSEC/ASSFA, like a

private business, considered the economic horizon:

[ASSEC/ASSFA] considered many factors when setting the FY

2016 budget. These factors include the economy of both the United

States and foreign countries, continued introduction of year-round

schools, spending restrictions on public schools, and the ability of

the reporting units to successfully market products to consumers.

These factors taken into consideration required a modest growth in

anticipated revenue with a focus on controlling labor, cost of goods

sold, and outside services costs.

(Doc. 88-11, p. 14). ASSEC’s position in the Barnhart case illustrates that ASSEC,

like a private corporation, actively avoids state control.

Because ASSEC receives a small portion of its funding from the State of

Alabama, it has reporting obligations to the state. Ala. Code § 41-9-437. And

because ASSEC receives a small portion of its funding from the State of Alabama,

ASSEC may take advantage of certain benefits like the opportunity to request state-

appointed counsel. (Doc. 98-1). But ASSEC operates independently of the State so

that “through its separate existence,” it may provide benefits to citizens of the State

of Alabama through the programs that ASSEC operates “with funds obtained from

sources other than the tax revenues of a governmental entity.” Hill Rom, 545 So. 2d

at 1326.

3. Most of ASSEC’s Funds are not Appropriated by the State of

Alabama

As discussed above and as the Court previously has found, ASSEC generates

most of its funding through its business operations. (Doc. 52, p. 6). According to

the ASSEC/ASSFA combined financial statement for fiscal year 2015,

ASSEC/ASSFA had $26,260,069 in operating revenues and $28,162,502 in total

revenues. (Doc. 88-11, p. 12). Of that total, $25,918,114 came from “Sales &

Charges for Services;” $1,131,155 came from “Operating Grants & Contributions;”

$532,028 came from “State of Alabama Appropriation;” $1,086,316 came from

lodging tax; and $618,829 came from capital contributions.” (Doc. 88-11, p. 13).9

9 ASSEC can pay its expenses with the revenue that ASSEC generates from its business operations.

For fiscal year 2015, ASSEC/ASSFA had approximately $28 million in total operating expenses.

(Doc. 88-11, pp. 13-14). Of that amount, ASSEC/ASSFA had $5,856,507 in expenses for Space

Camp. (Doc. 88-11, p. 13). ASSEC/ASSFA had $13,264,916 in expenses for “Personnel

Services.” (Doc. 88-11, p. 14).

A comment in the ASSEC/ASSFA financial statement for fiscal years 2015 and 2016

makes clear that ASSEC and ASSFA operate a business, and that business uses a

relatively small appropriation from the state Education Trust Fund to provide

programs to Alabama teachers and students.10 According to the financial statement:

Operating revenues for FY 2016 increased by $5,495,528 over FY 2015

due to an increase in revenue for all the major revenue lines of business.

Most notably, camp programs, merchandise and other sales increased

by 15%. In addition, operating grants grew by 145% in support of

NASA’s Sally Ride EarthKam payload in the Space Racers Saturday

morning cartoon effort supported with a NASA grant. Operating

expenses for FY 2016 increased proportionally to the growth in

revenue. It should also be noted, the State of Alabama appropriations

from the Education Trust Fund increased by $371,973.11 This increase

provided additional programs for Alabama educators and students.

(Doc. 88-11, p. 12).

Information in the State of Alabama Executive Budget report is in accord with

ASSEC/ASSFA’s financial report for fiscal years 2015 and 2016. The Executive

Budget report indicates that for fiscal year 2015, ASSEC received $26,420,591 from

“Admissions/Sales/Miscellaneous,” $1,046,000 from “Lodging Tax,” and $582,348

from the Education Trust Fund. (Doc. 87-11, p. 284).12

10 ASSEC’s 2015 appropriation from the Education Trust Fund of $533,028 is small relative to

ASSEC/ASSFA’s overall revenues for 2015 of more than $28 million and relative to the Education

Trust Fund’s appropriations to other entities in 2015. For 2015, the Alabama Education Trust

Fund appropriated a total of more than $5.91 billion to dozens of entities. (Doc. 87-11, pp. 28-

30).

11 The narrative portion of the financial statement states the increase was $371,973, but the

accounting portion of the statement indicates an increase of $317,973. (Doc. 88-11, pp. 12-13).

12 The State of Alabama reported that ASSEC had total receipts of $28,028,939 for fiscal year

ASSEC asserts that it is an arm of the state because its “finances are

entrenched in the State of Alabama’s budgeting process from start to finish.” (Doc.

90, p. 18). ASSEC states that it “submits its budget goals to Alabama’s Department

of Finance annually”; it “updates the Department quarterly” on its [ASSEC’s]

financial status; the Department of Finance considers requests from ASSEC “when

helping the Governor prepare the annual executive budget;” the Governor reports

ASSEC’s financial status “as a ‘discretely presented component unit’” in an annual

financial report; ASSEC’s financial books may be audited by the Alabama

Department of Examiners of Public Accounts; and “the State includes ASSEC’s total

receipts, regardless of the source, within the Education Trust Fund.” (Doc. 90, pp.

20-21). These reporting obligations and the state’s accounting practices do not alter

the fact that most of the revenue that ASSEC reports comes from its business

operations, not the State of Alabama. Those business operations concern the

marketing and sale of products that ASSEC owns independently.

As for ASSEC’s contention that its funds are state funds because “Executive

Budget Office records reflect that the State keeps all of ASSEC’s income in the

2015, and ASSEC used more than $13 million of its receipts to fund personnel costs and employee

benefits for 346 employees. (Doc. 87-11, p. 284). According to the state report, for fiscal year

2015, ASSEC spent more than $1 million for outside professional fees and services and just over

$800,000 to service ASSEC’s debt. (Doc. 87-11, p. 284). Given the fact that the data in the

ASSFA/ASSEC fiscal year 2015 financial statement and the data in the State Executive Budget

report regarding 2015 is virtually identical, it appears that the State of Alabama follows ASSEC’s

lead and combines the operating expenses and revenues of ASSEC and ASSFA.

Education Trust Fund as earmarked funds,” (Doc. 90, p. 22), the record confirms

that the State of Alabama Executive Budget report indicates that ASSEC’s revenues

are held in the Education Trust Fund as “earmarked funds.” (Doc. 87-11, p. 29).

But if the State of Alabama is requiring ASSEC to place commission revenues in the

Education Trust Fund and if the State regards those revenues as state funds rather

than funds belonging to ASSEC, then the State’s conduct appears inconsistent with

state law which states that ASSEC’s “funds from all donations, income and revenue

from any source whatsoever” should come into “its [i.e. ASSEC’s] treasury.” Ala.

Code § 41-9-432 (11).

Based on its assertion that ASSEC’s revenues from all sources are held in

Alabama’s Education Trust Fund as earmarked funds, ASSEC likens itself to the

Alabama State Bar, an entity which the Eleventh Circuit Court of Appeals has held

is an arm of the State of Alabama. (Doc. 90, pp. 21-22) (citing Nichols, 815 F.3d at

732). In holding that the Alabama State Bar is an arm of the state, the Eleventh

Circuit considered the fact that:

[t]he State Bar’s collection of fees is authorized by the Alabama

legislature, those fees are deposited into the state treasury and can be

spent only as appropriated by the Alabama legislature, and the Alabama

Department of Finance supervises the State Bar’s finances. See Ala.

Code §§ 34–3–3, 34–3–4, 34–3–44, 41–4–2.

Nichols, 815 F.3d at 732. ASSEC operates very differently from the Alabama State

Bar. As discussed, the Alabama Legislature requires ASSEC to place its revenue in

its own treasury, not in the state treasury. Ala. Code § 41-9-432 (11).13 ASSEC

creates its own budget without state oversight and spends its revenue as it sees fit.

Thus, the Nichols opinion does not warrant a finding that ASSEC is an arm of the

state.

ASSEC also cites Fouche v. Jekyll Island-State Park Authority, 713 F.2d 1518

(11th Cir. 1983), to support its argument that it is an arm of the state. (Doc. 90, pp.

22-23). In Fouche, the Eleventh Circuit, applying Georgia law, held that a Georgia

park authority was an arm of the State of Georgia. 713 F.2d at 1522. As in Nichols,

in reaching its holding, the Eleventh Circuit evaluated the extent to which the park

authority operated independently of the State of Georgia. The Court of Appeals

stated: “Even though the Park Authority can raise money through the issuance of

bonds and from the operation of Jekyll Island State Park, its fiscal life is controlled

by the state.” Fouche, 713 F.2d at 1522.

As to fiscal control, the Eleventh Circuit considered the State of Georgia’s

involvement in the park authority’s budget process. Like ASSEC, the park authority

had to submit its budget for review by the State of Georgia. 713 F.2d at 1520. Unlike

ASSEC, the park authority’s budget was “submitted to the General Assembly as part

13 Although ASSEC argues that the Governor reports ASSEC’s revenues as earmarked funds in

the Education Trust Fund and provides evidence that supports the reporting argument, (Docs.

87-11, 87-12), ASSEC has not stated that it actually places its revenue in the Education Trust Fund.

The omission suggests that ASSEC may, in fact, follow the directive of the Alabama Legislature

and hold its revenues in the ASSEC treasury.

of the Department of Natural Resources’ budget.” 713 F.2d at 1520. Again, ASSEC

does not have to submit its budget to the State of Alabama for approval. The

Eleventh Circuit also considered the extent to which the State of Georgia was

involved in contracts to which the park authority was a party. The Court of Appeals

explained: “All leases granted by the Park Authority are deemed to be contracts

between the individual lessee, the Authority, and the state of Georgia. O.C.G.A. §

12–3–249(d). The General Assembly must approve the sale of specified lands on

Jekyll Island. O.C.G.A. § 12–3–248.” 713 F.2d at 1521. The State of Alabama is

not a party to ASSEC leases, and ASSEC can sell property without the approval of

the State. Ala. Code § 41-9-432.

There are similarities between the way in which the park authority operated

relative to the State of Georgia and the way in which ASSEC operates relative to the

State of Alabama, but there are important differences too. Perhaps the most

important difference between Fouche and this case is the fact that Alabama law

governs ASSEC’s status. In Fouche, the Eleventh Circuit pointed out that although

no court had examined the park authority’s status for purposes of sovereign

immunity under Georgia law, courts had examined the status of other state

authorities and had determined that the Georgia Building Authority and the Hospital

Authority were arms of the State of Georgia. Fouche, 713 F.2d at 1522. The Court

of Appeals stated: “Although Georgia authorities are both instrumentalities and

public corporations, case law demonstrates that they are assumed to possess

sovereign immunity.” 713 F.2d at 1522. As discussed, the Alabama Supreme Court

has reached an opposite conclusion. The Alabama Supreme Court has held that

Alabama’s Hospital Authority is separate from the State of Alabama, Hill Rom, 545

So. 2d at 1326; the Alabama Building Renovation Finance Authority is separate

from the State of Alabama, Stallings & Sons, 689 So. 2d at 793; and the Alabama

Legislature separately incorporated public entities like the Health Care Authority

and the Alabama Space Science Exhibit Finance Authority, so that those entities

could function independent of state and local authorities, Hill Rom, 545 So. 2d at

1326; Stallings & Sons, 689 So. 2d at 792-93. The Eleventh Circuit’s decision in

Fouche does not dictate a finding here that ASSEC is an arm of the State of Alabama.

ASSEC generates the vast majority of its operating revenues, and ASSEC

pays all of its significant operating expenses with those revenues so that ASSEC, a

public entity separate from the State of Alabama, may serve the citizens of Alabama

without reliance on state funding. Hill Rom, 545 So. 2d at 1326. This financial

independence indicates that ASSEC is not an arm of the State of Alabama.

4. A Judgment Against ASSEC will not Affect the State of Alabama

In the 2016 Order, the Court stated:

ASSEC’s enabling statue does not state explicitly whether

ASSEC or the State of Alabama is responsible for judgments against

the Commission; however, ASSEC has its own treasury and may

‘allocate and expend funds from all donations, income and revenue

from any source whatsoever coming into its treasury for the fulfillment

and accomplishment of its duties and responsibilities . . . .” Ala Code.

§ 41-9-432(11). This provision suggests, and ASSEC has not disputed,

that the Commission, and not the State of Alabama, is responsible for

judgments against ASSEC. The Court has no information before it to

suggest that any entity other than ASSEC would be responsible for

paying a judgment against the Commission. Accordingly, the Court

finds that a judgment against ASSEC would not “adversely affect the

state treasury.” [Armory Commission of Alabama v.] Staudt, 338 So. 2d

[991,] 994 [(Ala. 1980)]; but see Nichols, 815 F.3d at 732-33 (11th Cir.

2016) (“Judgments against the State Bar will be paid out of its state

treasury fund, but only ‘as budgeted and allotted’ by the Alabama

legislature, potentially affecting the treasury as a whole.”) (internal

citation omitted).

(Doc. 52, pp. 13-14).

On the current record, ASSEC argues that because its “finances and property

are intertwined with the State budget, any money judgment against the agency would

adversely affect the State treasury.” (Doc. 90, p. 21). The Court has discussed at

length the difference between paper accounting and ASSEC’s statutory obligations

with respect to its revenues. The current record does not change the Court’s analysis.

If Odysseia were to successfully litigate its counterclaims against ASSEC, ASSEC

could pay that judgment from its operating revenues. The State of Alabama would

not be liable for a judgment for damages against ASSEC.14

14 ASSEC cites University of South Florida Bd. of Trustees v. CoMentis, Inc., 861 F.3d 1234 (11th

Cir. 2017), for the proposition that the State of Alabama would have to pay a damages judgment

against ASSEC. (Doc. 90, pp. 21-22). In University of South Florida, the Eleventh Circuit held

that the State of Florida ultimately paid for the judgments against the University of South Florida

Board of Trustees. 861 F.3d at 1236-37. The Eleventh Circuit stated that despite the board of

trustees’ ability to “enter into contracts, sue and be sued, implead and be implead, and therefore

hold property and have judgments entered against them,” the state “ultimately” paid for such

CONCLUSION

ASSEC has established that it is a public entity, but it has not demonstrated

that it is an arm of the state of Alabama. The evidence indicates that ASSEC is an

entity separate from the state. Therefore, ASSEC is a citizen for purposes of

diversity of citizenship jurisdiction, and ASSEC and Odysseia are completely

diverse. Accordingly, the Court denies ASSEC’s motion for summary judgment

(Doc. 89) as it relates to subject matter jurisdiction. By a separate memorandum

opinion and order, the Court will address the remaining issues raised in ASSEC’s

summary judgment motion.

DONE and ORDERED this September 16, 2019.

Madiliss

UNITED STATES DISTRICT JUDGE

judgments by funding the university’s activities in general and mandating the university’s

enrollment in risk-management insurance. Univ. of S. Fla., 861 F.3d at 1236-37. The Court of

Appeals explained that the Florida Legislature funded the university’s budget, and the Florida

Board of Governors secured a comprehensive general liability insurance for state universities.

Univ. of S. Fla., 861 F.3d at 1236. By statute, the board of trustees had to maintain coverage under

a “State Risk Management Trust Fund.” Univ. of S. Fla., 861 F.3d at 1236-37. As discussed at

length, the State of Alabama funds only a very small part of ASSEC’s activities, and ASSEC has

no similar obligation to participate in a state risk fund.

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