Maryland Stadium Authority; University System of Maryland v.  ELLERBE BECKET INCORPORATED, a Delaware Corporation

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 MARYLAND STADIUM AUTHORITY;
UNIVERSITY SYSTEM OF MARYLAND,
Plaintiffs-Appellants,
v. No. 04-1743 
ELLERBE BECKET INCORPORATED, a
Delaware Corporation,
Defendant-Appellee. 
 MARYLAND STADIUM AUTHORITY;
UNIVERSITY SYSTEM OF MARYLAND,
Plaintiffs-Appellants,
v. No. 04-2083 
ELLERBE BECKET INCORPORATED, a
Delaware Corporation,
Defendant-Appellee. 
Appeals from the United States District Court
for the District of Maryland, at Baltimore.
Marvin J. Garbis, Senior District Judge.
(CA-03-3456-MJG)
Argued: March 16, 2005
Decided: May 11, 2005
Before LUTTIG, WILLIAMS, and GREGORY, Circuit Judges.
Reversed and remanded with instructions by published opinion. Judge
Williams wrote the opinion, in which Judge Luttig and Judge Gregory
joined.

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COUNSEL
ARGUED: Joel Henry Oleinik, Assistant Attorney General, OFFICE
OF THE ATTORNEY GENERAL OF MARYLAND, Baltimore,
Maryland, for Appellants. Christopher Rowe Mellott, VENABLE,
L.L.P., Baltimore, Maryland, for Appellee. ON BRIEF: J. Joseph
Curran, Jr., Attorney General of Maryland, Jennifer L. Forrence,
Assistant Attorney General, Baltimore, Maryland, for Appellants.
Randolph Stuart Sergent, VENABLE, L.L.P., Baltimore, Maryland,
for Appellee.
OPINION
WILLIAMS, Circuit Judge:
The Maryland Stadium Authority (Stadium Authority) and the Uni-
versity System of Maryland (the University) filed a lawsuit against
Ellerbe Becket, Inc., an architectural and engineering firm, in Mary-
land state court alleging state law claims for breach of contract, negli-
gence, and indemnification. The claims arose from Ellerbe Becket’s
provision of architectural and engineering services for the construc-
tion of a new basketball arena at the University of Maryland, College
Park. Ellerbe Becket timely removed the case to federal court, and
before us is the Stadium Authority and the University’s interlocutory
appeal of the district court’s denial of their motion to remand.1 We
conclude that the district court lacked removal jurisdiction because
the University is an alter ego of Maryland and, therefore, is not a "cit-
izen" for purposes of diversity jurisdiction under 28 U.S.C.A. § 1332
(West 1993 & Supp. 2004). Accordingly, we reverse and remand the
case to the district court with instructions to remand the case to state
court.
1Also before this court is an interlocutory appeal from the Stadium
Authority, alleging that the district court erred in denying its motion to
dismiss a counterclaim filed by Ellerbe Becket on the ground of Eleventh
Amendment immunity. Because we find that no diversity jurisdiction
exists in this case, we do not need to reach this question.
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I.
The University System of Maryland
Because the question of whether an entity is an alter ego of the
state is a highly fact-intensive undertaking, we go into some detail
regarding the University’s structure and operations. The University
was established "to foster the development of a consolidated system
of public higher education, to improve the quality of education, to
extend its benefits and to encourage the economical use of the State’s
resources." Md. Code Ann., Educ. § 12-101(a) (Supp. 2004). It is a
body corporate and politic, defined as "an instrumentality of the State
and a public corporation." Md. Code Ann., Educ. § 12-102(a)(2)
(2004). The University is an independent unit of State government
performing an essential public function. Md. Code Ann., Educ. § 12-
102(a)(3),(4). The University is composed of numerous campuses
located throughout the state. These include: the University of Mary-
land, Baltimore; University of Maryland, Baltimore County; Univer-
sity of Maryland, College Park; University of Maryland Eastern
Shore; University of Maryland University College; Bowie State Uni-
versity; Coppin State University; Frostburg State University; Salis-
bury University; Towson University; and University of Baltimore.
Md. Code Ann., Educ. § 12-101(b)(4)(i)-(xi) (Supp. 2004).
The University’s governance is entrusted to a Board of Regents
(the Board), which is composed of seventeen members, all but one of
whom are directly appointed by the Governor with the advice and
consent of the Maryland Senate. Md. Code Ann., Educ. § 12-102(e)
(2004). The Secretary of Agriculture is designated, by statute, as the
other member.2 Md. Code Ann., Educ. § 12-102(c)(2) (2004). Persons
appointed to the Board serve five year terms. Md. Code Ann., Educ.
§ 12-102(f) (2004). The University can, through the Board, exercise
a broad range of powers. The University can: sue and be sued, enter
into contracts, borrow money to purchase personal property, and exer-
cise the powers of Maryland corporations. Md. Code Ann., Educ.
§§ 12-104(b)(1)-(7) (Supp. 2004). Any contract for services or capital
2The Governor appoints an individual to the position of Secretary of
Agriculture with the advice and consent of the Senate. Md. Code Ann.,
Agriculture § 2-102(a) (1999).
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improvements over $500,000 must be approved by the Board of Pub-
lic Works (BPW).3 Md. Code Ann., State Fin. & Proc. § 11-
203(e)(3)(ii)(1) (Supp. 2004). The University may, subject to the
approval of the Governor and General Assembly, create new institu-
tions or merge or close existing institutions. Md. Code Ann., Educ.
§ 12-104(f) (Supp. 2004). The University may, subject to the approval
of the BPW, sell and purchase real property. Md. Code Ann., Educ.
§ 12-104(g),(h) (Supp. 2004). The University is also empowered to
issue revenue bonds, Md. Code Ann., Educ. § 19-102(a)(2) (Supp.
2004), subject to the Legislature’s prior approval of both the project
that the bonds will finance and the "[m]aximum principal amount of
bonds" to be issued. Md. Code Ann., Educ. § 19-102(d)(1)(ii) (Supp.
2004).
The Board is responsible for proposing budgets for the University,
and for requesting appropriations from the General Assembly. Md.
Code Ann., Educ. § 12-105(a)(1) (2004). The University may borrow
money without creating a debt obligation for the State. Md. Code
Ann., Educ. § 12-105(c) (2004). However, the title of any real prop-
erty obtained by the University is in the name of the State, and "[a]ll
property of the University is the property of the State." Md. Code
Ann., Educ. § 12-105(b)(2) (2004). The University submits "requests
for appropriations" each fiscal year. Md. Code Ann., Educ. § 12-
105(a)(1)(iii) (2004). These requests are "recommendations" and are
not binding upon the Legislature. Md. Code Ann., Educ. § 12-
105(a)(2)(ii) (2004). In 2002, approximately 36% of the University’s
revenue was received from the state, with around 30% of the Univer-
sity’s revenue coming in the form of a state appropriation. About 47%
of the University’s revenue came from non-governmental sources.
All of the University’s income is either deposited "[i]n the State
Treasury" or "[a]s the State Treasurer directs." Md. Code Ann., Educ.
§ 12-105(d)(i),(ii) (2004). The University may spend revenues in
excess of those estimated in a fiscal year, but only "[b]y an approved
budget amendment." Md. Code Ann., Educ. § 12-105(d)(2) (2004).
3The Board of Public Works is composed of the Governor, the Comp-
troller, and the Treasurer. Md. Const. Art. III § 1. The Governor and
Comptroller are elected positions, while the Treasurer is appointed by the
General Assembly.
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Unexpended and unencumbered balances held by the University at
the close of a fiscal year do not revert to the general state treasury.
Md. Code Ann., Educ. § 12-105(d)(3) (2004). Such balances must,
however, "be reported to the Comptroller at the end of the fiscal year"
and may be expended "through an appropriation contained in a budget
bill or through an approved budget amendment." Id.
The University is not subject to the State Personnel Management
System or the State Finance and Procurement Article. Md. Code
Ann., Educ. §§ 12-111, 12 (2004). It is charged with implementing its
own procurement policies and receiving approval for those policies
from both the BPW and the Administrative, Executive, and Legisla-
tive Review Committee in the Maryland Legislature. Md. Code Ann.,
State Fin. & Proc. § 11-203(e)(3)(ii)(1). The BPW and Legislature
may inquire into any aspect of the University’s activities at any time,
Md. Code Ann., Educ. § 12-105(e) (2004), and the Legislative Audi-
tor is responsible for auditing the University’s finances each fiscal
year. Md. Code Ann., Educ. § 12-105(f) (2004).
Under state law, tort claims made against the University are cov-
ered under the Maryland Tort Claims Act, with the reservation that
"[n]othing in this subsection shall be construed to waive or abrogate
the immunity of the University System of Maryland under the Elev-
enth Amendment to the United States Constitution." Md. Code Ann.,
Educ. § 12-104(i)(4) (Supp. 2004). The University’s state sovereign
immunity is waived to the extent of "any applicable liability insurance
purchased by the University or the State Treasurer." Md. Code Ann.,
Educ. § 12-104(i)(2) (Supp. 2004).
The Comcast Arena Project
The current litigation stems from the construction of the Comcast
Arena, a new basketball arena for the Terrapins of the University of
Maryland, College Park. The total projected cost for the arena was
$126,845,000. The Legislature issued a mandate that the Stadium
Authority4 should "manage the preparation of the detailed plans" for
4The Stadium Authority was created in order to facilitate the develop-
ment of sports stadiums and performing arts centers in Maryland. The
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constructing the new arena. 1998 Md. Laws 138. In accordance with
that mandate, the Stadium Authority entered into a contract with
Ellerbe Becket to provide "all necessary and customary architectural
and engineering services" required in constructing the arena. (J.A. at
35.) The University alleges that a design defect discovered during
construction required it to expend $1,800,000.
Procedural History
On November 3, 1999, the Stadium Authority and the University
filed a complaint in their own names against Ellerbe Becket in the
Circuit Court for Baltimore City alleging claims for negligence,
breach of contract, and indemnification. The parties were represented,
not by private counsel, but by the Maryland Attorney General’s
office. Ellerbe Becket removed the case to federal court on the basis
of diversity of citizenship,5 and it filed a counterclaim against the Sta-
dium Authority for fees it alleged it was owed under the contract. No
counterclaim was filed against the University.
On January 5, 2004, the Stadium Authority moved to dismiss the
counterclaim under the Eleventh Amendment, and both the Stadium
Authority and the University moved to remand the case to the state
court. Both alleged that they were "alter egos" or "arms" of the State
of Maryland and, accordingly, were not "citizens" for the purpose of
§ 1332. Because diversity jurisdiction was lacking, both argued, the
case should be remanded to state court.
The district court noted that "the questions presented [were] close
ones as to which there [we]re reasonable arguments on both sides,"
Stadium Authority is a "body corporate and politic" under Maryland law,
as well as an "instrumentality of the State and a public corporation." Md.
Code Ann., Fin. Inst. §§ 13-702(a),(b) (2003). Under the statute authoriz-
ing its creation, the Stadium Authority is described as "an independent
unit in the Executive Branch of State government." § 13-702(c). The Sta-
dium Authority’s duties represent the "performance of an essential public
function." § 13-702(d).
5Ellerbe Becket is a Delaware corporation; it alleged that the Univer-
sity and Stadium Authority are citizens of Maryland.
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but it denied the motion to dismiss the counterclaim and the motion
to remand, concluding that neither the University nor the Stadium
Authority were arms or alter egos of Maryland. (J.A. at 284.) To
reach this conclusion, the district court determined that both the Uni-
versity and Stadium Authority possessed a great deal of fiscal and
operational autonomy. The district court recognized that both entities
were engaged in statewide, as opposed to local, activities, and that
state law generally treated both as arms of the state. On balance, how-
ever, the district court concluded that the entities’ respective auton-
omy indicated that neither was properly characterized as an arm of the
state. With respect to the University, the district court was particularly
persuaded by the fact that many of the University’s employees
received a salary in excess of other State officials, including the Gov-
ernor of Maryland.6 The Stadium Authority, under the collateral order
doctrine, immediately appealed the ruling on the Eleventh Amend-
ment. See P.R. Aqueduct & Sewer Auth. v. Metcalf & Eddy, Inc., 506
U.S. 139, 147 (1993) (holding "States and state entities that claim to
be ‘arms of the State’ may take advantage of the collateral order doc-
trine to appeal a district court order denying a claim of Eleventh
Amendment immunity"). The district court then certified the remain-
der of its order for appeal, and we consolidated the two appeals for
oral argument. We have jurisdiction under 28 U.S.C.A. §§ 1291,
1292(b) (West 1993).
II.
A.
On appeal, both the Stadium Authority and the University argue
that they are not "citizens" of Maryland under § 1332 and, accord-
ingly, no diversity jurisdiction exists in this case to support removal
jurisdiction.7 We review questions of subject matter jurisdiction de
6The Governor receives an annual salary of $140,000. The district
court found that the University paid 43 employees more than $250,000
in annual salary. In addition, the district court found that the head basket-
ball and football coaches at the University of Maryland at College Park
received a minimum yearly salary of $1,300,000 and $1,100,000 respec-
tively.
7Because we conclude that the University is not a citizen of Maryland
under 28 U.S.C.A. § 1332 (West 1993 & Supp. 2004), we do not address
the Stadium Authority’s status.
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novo, "including those relating to the propriety of removal." Mayes
v. Rapoport, 198 F.3d 457, 460 (4th Cir. 1999). The burden of dem-
onstrating jurisdiction resides with "the party seeking removal." Mul-
cahey v. Columbia Organic Chems. Co., 29 F.3d 148, 151 (4th Cir.
1994). We are obliged to construe removal jurisdiction strictly
because of the "significant federalism concerns" implicated. Id.
Therefore, "[i]f federal jurisdiction is doubtful, a remand [to state
court] is necessary." Id.
Section 1441 of Title 28 provides that "any civil action brought in
a State court of which the district courts of the United States have
original jurisdiction, may be removed by the defendant or the defen-
dants, to the district court of the United States for the district and divi-
sion embracing the place where such action is pending." 28 U.S.C.A.
§ 1441(a) (West 1994). Ellerbe Becket premised its removal upon
§ 1332(a)(1), which provides for original district court jurisdiction of
all cases between citizens of different states when the amount in con-
troversy exceeds $75,000. States, however, are not "citizens of a
state" for purposes of § 1332(a). Moor v. Alameda County, 411 U.S.
693, 717 (1973). In addition, public entities and political subdivisions,
such as municipalities, are also not "citizens of a state" if they are an
"arm or alter ego of the State." Id. at 717-18. For a suit to be "between
citizens of different states," § 1332(a), "each distinct interest should
be represented by persons, all of whom are entitled to sue, or may be
sued, in the federal courts. Strawbridge v. Curtiss, 7 U.S. 267 (1806).
"That is, . . . each of the persons concerned . . . must be competent
to sue, or liable to be sued, in [federal court]." Id. Thus, if one party
to an action is not a citizen, and therefore not able to sue or be sued
in federal court under § 1332, the district court does not have jurisdic-
tion of the action under § 1332, even if all other parties to that action
are citizens of different states. Accordingly, if either the University or
the Stadium Authority is an alter ego of Maryland, the requirements
of § 1332 are not met in this case and removal was improper.
B.
In determining if a public entity is an alter ego of the state, and
therefore not a "citizen" under § 1332, courts have generally looked
to the standards announced in cases addressing whether governmental
entities are entitled to Eleventh Amendment immunity as an arm of
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the state.8 See, e.g., Univ. of S. Ala. v. Am. Tobacco Co., 168 F.3d
405, 412 (11th Cir. 1999); Univ. of R.I. v. A.W. Chesterton Co., 2 F.3d
1200, 1202 n.4, 1203 (1st Cir. 1993). In this case, neither the Univer-
sity nor Ellerbe Becket disputes application of Eleventh Amendment
standards in determining whether the University is a "citizen" of
Maryland for purposes of § 1332.
Typically, we apply a four factor test, first announced in Ram Ditta
v. Md. Nat’l Capital Park & Planning Comm’n, 822 F.2d 456 (4th
Cir. 1987), to determine whether a governmental entity is an "arm of
the state" under the Eleventh Amendment. Accordingly, we will apply
the same multi-factored test in this case to determine if the University
is an alter ego of the state and therefore not a "citizen" under § 1332.
Under the framework provided by Ram Ditta, in determining an
entity’s status as an arm of the state, "the most important consider-
ation is whether the state treasury will be responsible for paying any
judgment that might be awarded." Id. at 457; see also Cash v. Gran-
ville County Bd. of Educ., 242 F.3d 219, 223 (4th Cir. 2001) ("The
principal factor . . . is whether a judgment against the governmental
entity would have to be paid from the State’s treasury."). After resolv-
ing this inquiry, we examine three other factors, "includ[ing], but
. . . not necessarily limited to, whether the entity exercises a signifi-
cant degree of autonomy from the state, whether it is involved with
local versus statewide concerns, and how it is treated as a matter of
state law."9 Ram Ditta, 822 F.2d at 457-58 (footnotes omitted); see
8The Eleventh Amendment provides, "[t]he 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." U.S. Const. amend. XI. Eleventh Amendment immunity extends
to state agencies and other governmental entities that can be viewed as
"arm[s] of the State." P.R. Aqueduct & Sewer Auth. v. Metcalf & Eddy,
Inc., 506 U.S. 139, 144 (1993) ("[A] State and its ‘arms’ are, in effect,
immune from suit in federal court.").
9The factors in Ram Ditta were crafted from the Supreme Court’s
opinion in Lake Country Estates, Inc. v. Tahoe Reg’l Planning Agency,
440 U.S. 391 (1979). The Court in Lake Country Estates examined the
following six factors in this context: (1) how the entity is characterized
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also Gray v. Laws, 51 F.3d 426, 434 (4th Cir. 1995) (noting arm of
the state status may "be determined by resort to the other relevant
considerations referenced by the Court, chief among which are
whether the suit will jeopardize ‘the integrity retained by a State in
our federal system,’ and whether the state possesses such control over
the entity . . . that it can legitimately be considered an ‘arm of the
state’.") (internal citation omitted).
We analyze the second Ram Ditta factor, the operational autonomy
of the entity, by considering whether the state retains a veto over the
entity’s actions, the origins of the entity’s funding, and who appoints
the entity’s directors. See Ristow v. S.C. Ports Auth., 58 F.3d 1051,
1052 (4th Cir. 1995).10 As to the fourth factor, although "[a] state
court’s view of the status of a state political entity is, of course, an
important factor, . . . questions of eleventh amendment immunity are
ultimately governed by federal law." Ram Ditta, 822 F.2d at 459-60.
These factors elucidate whether the "relationship between the govern-
mental entity and the State [is] sufficiently close to make the entity
an arm of the State." Cash, 242 F.3d at 224.11
in its creating statutes; (2) who originates funding for the entity; (3)
whether the state is liable for obligations incurred by the entity; (4) who
has the power to appoint the entity’s officers; (5) whether the entity’s
functions are traditionally state or municipal; and (6) whether the state
retains a veto over the entity’s actions. Id. at 400-02. See also Ristow v.
S.C. Ports Auth., 58 F.3d 1051, 1052 & n.3 (4th Cir. 1995) (explaining
that Ram Ditta adopted the Lake Country Estate factors).
10The Supreme Court has noted that "[g]auging actual control . . . can
be a ‘perilous inquiry,’ ‘an uncertain and unreliable exercise.’" Hess v.
Port-Auth. Trans-Hudson Corp., 513 U.S. 30, 47 (1994). We believe the
three factors analyzed in Lake Country Estates make for a less perilous
journey. We encourage district courts to analyze these three factors
rather than engaging in a free-wheeling inquiry into the "autonomy" of
the state entity in question.
11In the Eleventh Amendment context, this four-factor test has recently
undergone a modification. The primacy of the state treasury factor under
Ram Ditta served as a recognition that the Eleventh Amendment is con-
cerned with a state’s monetary liability in lawsuits. See Pennhurst State
Sch. & Hosp. v. Halderman, 465 U.S. 89, 151 (1984) (Stevens, J., dis-
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One slight modification of Ram Ditta is necessary in the context of
this case. The University is the plaintiff in this action and no claims
are asserted against it. There is no possibility that, even if the Univer-
sity is an alter ego of the state, Maryland will be responsible for pay-
ing a judgment in this case. Thus, while the impact of the litigation
on the state treasury remains the most salient factor in determining
whether the University is an alter ego of the state for purposes of
§ 1332, the inquiry is reversed: that is, while we usually look to
whether the state will be liable for a judgment against the entity in
question, in cases in which a state entity is plaintiff, we will look to
whether any recovery by the entity will inure to the benefit of the
state. The Supreme Court has explicitly endorsed this approach in a
case involving diversity and removal jurisdiction:
applying the same principles of construction to the removal
acts [as to the Eleventh Amendment] and to cases in which
it is claimed that the state, though not the nominal, is in fact
the real, party plaintiff, it may fairly be held that the state
senting) (noting that states feared "federal courts would force them to
pay their Revolutionary War debts, leading to their financial ruin"). In
1994, the Supreme Court reaffirmed that "the Eleventh Amendment’s
twin reasons for being" were that federal court judgments not deplete the
state treasury, and that the "dignity" of the states be preserved. Hess, 513
U.S. at 39. Thus, "[w]hen indicators of immunity point in different direc-
tions, the Eleventh Amendment’s twin reasons for being remain [the]
prime guide." Id. Because of this language, later cases have indicated
that, in the context of the Eleventh Amendment, the effect of a suit on
the state treasury "is largely, if not wholly, dispositive of entitlement to
Eleventh Amendment immunity in the single state context." Gray v.
Laws, 51 F.3d 426, 433 (4th Cir. 1995); see also Ristow, 58 F.3d at 1055
n.10 (4th Cir. 1995) ("Hess, despite emphasizing the state treasury factor
as critical, left standing the other . . . factors when the state treasury issue
presents a close question."). In the context of reviewing the status of an
entity under § 1332, this concern with protecting the state treasury is not
as relevant. Accordingly, we will apply, in cases addressing whether an
entity is an alter ego of the state for purposes of diversity jurisdiction, the
original Ram Ditta standard. Thus, in contrast to cases involving an enti-
ty’s entitlement to Eleventh Amendment immunity, the effect of the
action on the state treasury will not be controlling.
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is such real party when the relief sought is that which inures
to it alone, and in its favor the judgment or decree, if for the
plaintiff, will effectively operate.
Mo., Kan., & Tex. Ry. Co. v. Hickman, 183 U.S. 53, 59 (1901). With
this framework in place, we turn to the question of whether the Uni-
versity is an alter ego of Maryland.
III.
For the reasons that follow, we hold that the University is an alter
ego of Maryland. Numerous courts have decided whether public state
universities are "arms of the state." Almost universally, the answer
has been in the affirmative. See, e.g., Takle v. Univ. of Wis. Hosp. &
Clinic Auth., No. 04-3097 (7th Cir. March 30, 2005); Univ. of S. Ala.,
168 F.3d at 412; Buchwald v. Univ. of N.M. Sch. of Med., 159 F.3d
487, 494 (10th Cir. 1998); Laxey v. La. Bd. of Tr., 22 F.3d 621, 622
(5th Cir. 1994); Hutsell v. Sayre, 5 F.3d 996, 999 (6th Cir. 1993);
Kashani v. Purdue Univ., 813 F.2d 843, 848 (7th Cir. 1987); Hall v.
Med. Coll. of Ohio at Toledo, 742 F.2d 299, 307 (6th Cir. 1984).
In some circuits, the issue was not even disputed. For instance, in
University of South Alabama, the Eleventh Circuit succinctly noted,
"[i]n the context of Eleventh Amendment immunity, we have held
that state universities are ‘agencies or instrumentalities’ of the state,
and thus are immune from suit in federal court." Univ. of S. Ala., 168
F.3d at 412. See also Watson v. Univ. of Utah Med. Ctr., 75 F.3d 569,
575 (10th Cir. 1996) ("Our cases have consistently found state univer-
sities are arms of the state."). In fact, research reveals only two circuit
court opinions concluding that a particular state university was not an
arm of the state. See A.W. Chesterton, 2 F.3d at 1211, Kovats v. Rut-
gers, 822 F.2d 1303, 1312 (3d Cir. 1987).12
We, too, have previously treated several public universities as arms
of the state. See Litman v. George Mason Univ., 186 F.3d 544, 550
12Kovats v. Rutgers, 822 F.2d 1303, 1310 (3d Cir. 1987), involves a
somewhat unique situation because Rutgers University was originally a
private university that was converted to a state university in 1956. Id. at
1310.
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(4th Cir. 1999); Huang v. Bd. of Governors of the Univ. of N.C., 902
F.2d 1134, 1139 (4th Cir. 1990); Richard Anderson Photography v.
Brown, 852 F.2d 114, 122 (4th Cir. 1988). Moreover, prior to this liti-
gation, two district courts in Maryland had found that the University
System of Maryland was an arm of the State of Maryland. See Palotai
v. Univ. of Md., 959 F. Supp. 714, 716 (D. Md. 1997); Bickley v.
Univ. of Md., 527 F. Supp. 174, 181 (D. Md. 1981). Despite this over-
whelming precedent, "each state university must be evaluated in light
of its unique characteristics." A.W. Chesterton, 2 F.3d at 1204.
Accordingly, we will conduct our own inquiry into whether the Uni-
versity is an alter ego of Maryland.
First, and most importantly, the State of Maryland would directly
benefit from any recovery by the University in this case. Quite sim-
ply, by statute all income generated by the University is deposited
into the state treasury or as directed by the state treasurer and all prop-
erty of the University is property of the state. See Md. Code Ann.,
Educ. § 12-105. It is true that, if the University takes in revenue
beyond that expected for a fiscal year, that money does not automati-
cally revert to the general state treasury at the close of the year. That
excess revenue, however, must be reported to the Comptroller and is
then available for use as an appropriation in the following year’s bud-
get. In other words, if the University has excess revenue at the end
of a fiscal year, that excess revenue is used to offset the University’s
appropriations the following year.
Ellerbe Becket argues that, because this excess revenue does not
automatically revert to the general state treasury, the state would not
directly benefit from a recovery by the University. In the Eleventh
Amendment context, the Fifth Circuit, in addressing a similar statu-
tory framework, explained that the "crucial question . . . is whether
use of these unappropriated funds to pay a damage award . . . would
interfere with the fiscal autonomy and political sovereignty of [the
state]." United Carolina Bank v. Bd. of Regents, 665 F.2d 553, 560-
61 (5th Cir. Unit A 1982). The separate funds in that case were "either
held in the Treasury or restricted as to use. In either event they are
subject to audit and budget planning. Thus any award from those
funds would directly interfere with the state’s fiscal autonomy." Id. at
561. Similarly, any monetary recovery by the University would be
reported to the Comptroller. The amount of the recovery would then
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be set off against any appropriations for the next fiscal year, resulting
in a direct benefit to the state — the outlay of less appropriations to
the University. In addition, the statutory regime that permits the Uni-
versity to keep excess revenue for the next fiscal year is "a conve-
nience, not . . . an abdication of state control over such funds."
Hutsell, 5 F.3d at 1002; Hall, 742 F.2d at 304.
In sum, we believe that the most important factor, whether the state
would directly benefit from any recovery by the University, indicates
that the University is an alter ego of the state. Moreover, we conclude
that, on balance, the remaining Ram Ditta factors also weigh in favor
of finding that the University is an alter ego of Maryland.
Although the University retains some operational independence in
its day to day activities, it is still closely tied to the state. All of the
members of the University’s governing body, the Board, are either
appointed by the Governor with the advice and consent of the Mary-
land Senate or are state officers. The fact that all of the University’s
decisionmakers are appointed by the Governor is a key indicator of
state control. See Lewis v. Midwestern State Univ., 837 F.2d 197, 198-
99 (5th Cir. 1988) (gubernatorial appointment of governing body "ar-
gue[s] strongly" in favor of finding that entity is arm of the state);
Kashani, 813 F.2d at 847 (finding it "[v]ery significant" that "the
majority of the members of Purdue’s governing council, the Board of
Trustees, are selected by the Governor"); Harden v. Adams, 760 F.2d
1158, 1163 (11th Cir. 1985) ("Troy State University is subject to sub-
stantial state control: its Board of Trustees . . . is composed in part
of state officials and in part of gubernatorial appointees."). But see
A.W. Chesterton, 2 F.3d at 1207-08 (discounting importance of
appointment power because members were given staggered terms and
minimal compensation in order to minimize state control).
In addition, the State retains a veto over most of the University’s
actions. The University can purchase and sell real property and enter
into contracts over $500,000 only with prior approval from either the
Legislature or the BPW. The State retains oversight ability over every
aspect of the University, and the University is subject to an annual
audit by the Legislative Auditor. See Hall, 742 F.2d at 306 (noting as
relevant that all receipts and expenditures were subject to state audit).
As discussed, the University receives appropriations on an annual
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basis and requires a budget amendment to spend any excess revenue
it receives in a given year. See Hutsell, 5. F.3d at 1002 (noting as rele-
vant that University of Kentucky receives yearly budget and appropri-
ation). The University’s income is handled as directed by the State
Treasurer and all University property is deemed property of the State.
See Hall, 742 F.2d at 306.
While the University can issue revenue bonds, it may do so only
after receiving legislative approval, and it lacks the power to tax. "The
absence of the power to tax is a strong indication that an entity is
more like an arm of the state than like a county or city, because that
enablement gives an entity an important kind of independence."
Kashani, 813 F.2d at 846. In addition, the University is represented
by the Attorney General in this litigation. See Cash, 242 F.3d at 225
(noting lack of control indicated by fact that local school board was
represented by private counsel instead of the Attorney General); Hall,
742 F.2d at 306 (noting fact that "State attorney general [wa]s ‘the
attorney for each state college’").
In contrast, the First Circuit, when concluding the University of
Rhode Island was not an arm of Rhode Island, found relevant that the
University held full legal title to all real and personal property, could
enter into contracts without limitation, and kept all of its funds in seg-
regated accounts for discretionary disbursement absent any state con-
trol. A.W. Chesterton, 2 F.3d at 1209-11. The First Circuit also noted
that the state retained very limited oversight of the University of
Rhode Island. Id. at 1211.
The final two Ram Ditta factors also favor a finding that the Uni-
versity is an alter ego of Maryland. It is undisputed that the University
is engaged in an area of statewide concern — educating the youth of
Maryland. The University has branch campuses located across the
state, from Frostburg State in the Cumberland Valley to the Univer-
sity of Maryland Eastern Shore. Higher education is an area of quin-
tessential state concern and a traditional state governmental function.
See Hutsell, 5 F.3d at 1002; A.W. Chesterton, 2 F.3d at 1206. And the
University’s mission, providing higher education for Maryland’s
youth, is clearly an area of statewide concern. See Kashani, 813 F.2d
at 848 ("Purdue educates students from all parts of the state.").
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Moreover, state law unambiguously treats the University as an alter
ego of Maryland. Although the question of whether an entity is an
alter ego of the state is a question of federal, not state, law, the man-
ner in which state law addresses the entity remains "important, and
potentially controlling." Hall, 742 F.2d at 304. In addressing this fac-
tor, "a court may consider both the relevant state statutes, regulations,
and constitutional provisions which characterize the entity, and the
holdings of state courts on the question." Harter v. Vernon, 101 F.3d
334, 342 (4th Cir. 1996). Here, the University is defined as an "instru-
mentality" of the state, and its implementing statute specifically states
that nothing in it shall be construed as waiving the University’s Elev-
enth Amendment immunity. Md. Code Ann., Educ. §§ 12-102(a)(2),
104(i)(4). Under state law, the University can only be sued pursuant
to the Maryland Tort Claims Act, which covers only the State and its
units. Md. Code Ann., Educ. § 12-104(c)(1). Caselaw from the Mary-
land Court of Appeals also views the University as an alter ego of the
state. See, e.g., Condon v. State, 632 A.2d 753, 758 (Md. 1993).
In sum, we believe that the University is an alter ego of Maryland.
As discussed, Maryland would directly benefit from any judgment
rendered in favor of the University. This factor is the "most impor-
tant" in determining if an entity is an alter ego of the state. Ram Ditta,
822 F.2d at 457. Furthermore, the University lacks operational auton-
omy, is performing an essential state-wide function, and is viewed as
an alter ego of the state by Maryland law. Because we hold that the
University is an alter ego of Maryland, it is not a "citizen" of Mary-
land under § 1332. Because the University is not a "citizen" of Mary-
land, it is not "competent to sue, or liable to be sued, in [federal
court]" under § 1332, and the district court did not have original juris-
diction of this action. Strawbridge, 7 U.S. at 267. Accordingly,
removal was improper.
IV.
Because the district court did not have original jurisdiction of this
action under § 1332, it should have remanded the case to state court.
Accordingly, we reverse and remand this case to the district court
with instructions to remand the case to Maryland state court.
REVERSED AND REMANDED WITH INSTRUCTIONS
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