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Utah Division of Consumer Protection v. Mandatory Poster Agency, Inc.

United States District Court, D. Utah, Central Division

December 21, 2017

UTAH DIVISION OF CONSUMER PROTECTION, Plaintiff,
v.
MANDATORY POSTER AGENCY, INC., a Michigan corporation, UTAH COUNCIL FOR CORPORATIONS, UTAH LABOR LAW POSTER SERVICE, INC., and STEVEN J. FATA, and JOSEPH FATA, Defendants.

          MEMORANDUM DECISION AND ORDER

          DAVID SAM SENIOR JUDGE UNITED STATES DISTRICT COURT

         INTRODUCTION

         The Plaintiff, the Utah Division of Consumer Protection (the “Division”) brought a claim against the Defendant, Mandatory Poster Agency, Inc. (“MPA”) in the Third Judicial District Court of Salt Lake County. MPA removed the action based on federal diversity jurisdiction. Plaintiff Division moves for the case to be remanded to the Third Judicial District Court of Salt Lake County.

         DISCUSSION

         The Division is a state agency within the Utah Department of Commerce. Utah Code Ann. § 13-1-2(2)(e). The Division is charged with protecting the public, and is authorized to take action to “prevent deceptive, misleading, and false advertising practices in Utah.” Id.

         MPA is a for-profit corporation headquartered in Michigan. MPA does business in Utah under the names Utah Council for Corporations (“UCC”) and Utah Labor Law Poster Service (“ULLPS”) with addresses also in Michigan. Defendants Steven J. Fata and Joseph Fata are at all times relevant to this case, officers, directors, and shareholders of MPA.

         Despite the fact that plaintiff's residence is diverse from defendant's, the Eleventh Amendment provides immunity from liability for state entities in federal court absent a waiver of immunity by the state. Edelman v. Jordan, 415 U.S. 651, 663 (1974). For purposes of diversity jurisdiction, the Supreme Court has held that a state entity, such as the Utah Department of Commerce, falls under the same immunity for purposes of diversity jurisdiction only if it is an “arm or alter ego of the State.” Moor v. Alameda City, 411 U.S. 693, 717 (1973). To make the determination whether an entity is an arm of the state, we engage in two general inquiries: “The court first examines the degree of autonomy given to the agency, as determined by the characterization of the agency by state law and the extent of guidance and control exercised by the state. Second, the court examines the extent of financing the agency receives independent of the state treasury and its ability to provide for its own financing.” Watson v. University of Utah Medical Ctr., 75 F.3d 569 (10th Cir. 1996) citing Haldeman v. State of Wyo. Farm Loan Bd., 32 F.3d 469, 473 (10th Cir. 1994). The Tenth Circuit has developed five factors to analyze this autonomy; 1) whether state law explicitly identifies the entity as an agency of the State; 2) what degree of autonomy the entity is afforded under state law; 3) whether the entity is state-funded or self-funding; 4) whether the entity is primarily concerned with state or local affairs; and 5) whether the state is liable for judgments against the entity. Steadfast Ins. Co. v. Agric. Ins. Co., 507 F.3d 1250, 1253 (10th Cir. 2007), Colby v. Herrick, 849 F.3d 1273, 1276 (10th Cir. 2017). Both MPA and the Division rely on these factors in their analyses, reaching different conclusions.

         The Division alleges that it is not autonomous but an “arm or alter ego” of the state and therefore not a citizen for diversity jurisdictional purposes. MPA alleges that the Division is autonomous under these factors. Further, MPA requests jurisdictional discovery to determine the state funding of the Division (factor 3) as well as The Division's degree of autonomy under state law (factor 2). MPA alleges that the Division has information that will allow it to analyze these factors more extensively and that jurisdictional discovery is necessary to make the jurisdictional decision of citizenship. MPA has also requested oral argument be set. Utilizing the above factors, the court has found that the Division is an arm of the State or a citizen for diversity jurisdiction.

         1. MOTION TO REMAND

         The Division has filed a motion to remand this case back to the state court. It argues it is an “arm of the state” and therefore is provided Eleventh Amendment immunity from liability in federal court. As noted above, the Tenth Circuit has developed five factors to analyze autonomy from the state in which an entity resides; 1) whether state law explicitly identifies the entity as an agency of the State; 2) what degree of autonomy the entity is afforded under state law; 3) whether the entity is state-funded or self-funding; 4) whether the entity is primarily concerned with state or local affairs; and 5) whether the state is liable for judgments against the entity. Steadfast Ins. Co., 507 F.3d at 1253. This autonomy determines whether an entity is an arm of the state and therefore provided Eleventh Amendment immunity. The court will now discuss each of the five factors considered in making its determination that the Division is an arm of the state.

         a. Whether state law explicitly identifies the entity as an agency of the State

         The Utah State Legislature created the Division and gave it the mandate to administer and enforce the state consumer protection laws. Utah Code § 13-2-1. The division shall be under the supervision, direction, and control of a director. The director shall be appointed by the executive director of commerce with the approval of the governor. The director shall hold office at the pleasure of the governor. Utah Code § 13-2-2. This hierarchy supports the Division's argument that state law identifies the entity as an agency of the state. While neither legislature nor case law have ever explicitly addressed whether the Division is a politically independent subdivision of the state or merely a state instrumentality, the court finds that a Legislature-created instrumentality would fall under their state authority. Through its creation by the state, the Legislature implied the Division would have state jurisdiction and would not be subject to diversity jurisdiction as a “citizen” of the state.

         b. What degree of autonomy the entity is afforded under state law

         In determining the degree of autonomy an entity may have, courts look at the “state's level of guidance and control over the entity.” Watson, 75 F.3d at 574. The state legislature created the Division to oversee and carry out the State of Utah's control over consumer protection. This alone is compelling in concluding that the Division is an instrumentality of the state and therefore not autonomous. It is carrying out a mission of the state. In Sturdevant, the Tenth Circuit considered whether a Community College Board was an arm of the state. The Court concluded that the Board held a considerable degree of autonomy; however, “these powers must be considered in light of the purpose, composition, and function of the state entity in question.” Sturdevant v. Paulsen, 218 F.3d 1160, 1168 (10th Cir. 2000). This mixture of autonomy and oversight is important in determining whether the Division is an arm of the state. In Sturdevant, the court found that the Board's ...


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