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McAdoo v. The University of North Carolina at Chapel Hill

United States District Court, M.D. North Carolina

March 29, 2017

MICHAEL McADOO and KENYA McBEE, individually, and on behalf of all others similarly situated, Plaintiffs,
v.
THE UNIVERSITY OF NORTH CAROLINA AT CHAPEL HILL, Defendant.

          MEMORANDUM OPINION AND ORDER

          Loretta C. Biggs United States District Judge.

         Plaintiffs Michael McAdoo and Kenya McBee, former student-athletes at the University of North Carolina at Chapel Hill (“UNC-Chapel Hill”), initiated this putative class action lawsuit, pursuant to 28 U.S.C. § 1332, against UNC-Chapel Hill alleging various state law claims. UNC-Chapel Hill moved to dismiss this action based on a number of defenses, including lack of subject matter jurisdiction and Eleventh Amendment immunity. (ECF No. 14; ECF No. 15 at 10-11.) In response, Plaintiffs requested leave to conduct jurisdictional discovery. By Order, dated June 23, 2016, the Court allowed limited jurisdictional discovery and further ordered supplemental briefing solely related to the issue of jurisdiction. (ECF No. 40.) For the reasons that follow, the Court grants UNC-Chapel Hill's Motion to Dismiss, for lack of subject matter jurisdiction.[1]

         I. BACKGROUND

         Plaintiffs, in their Amended Complaint (“Complaint”), describe a systemic failure to educate student-athletes at UNC-Chapel Hill from 1993 to 2011. (ECF No. 4 ¶¶ 1, 10.) They allege that “[s]tudent-athletes were disproportionately funneled into a ‘shadow curriculum' of bogus courses” in the Department of African and Afro-American Studies. (Id. ¶ 22.) Plaintiffs claim UNC-Chapel Hill deprived them of the education they were promised. (See id. ¶¶ 36, 88.) They assert six state law claims: (1) breach of contract, (2) breach of fiduciary duty, (3) unfair and deceptive trade practices, (4) fraud in the inducement, (5) constructive fraud, and (6) fraudulent concealment. (Id. at 24-32.) UNC-Chapel Hill moves to dismiss the claims pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. UNC-Chapel Hill argues, among other things, that the Court lacks subject matter jurisdiction, the University is immune from suit under the Eleventh Amendment, Plaintiffs lack standing, Plaintiffs filed their claims outside of the relevant statutes of limitation, and Plaintiffs have otherwise failed to state claims upon which relief can be granted. (See ECF No. 15 at 10-11, 16, 19, 25.)

         II. SUBJECT MATTER JURISDICTION

         Before this Court can address any of Plaintiffs' claims, it must first determine whether it has subject matter jurisdiction over this action. See Elyazidi v. SunTrust Bank, 780 F.3d 227, 232 (4th Cir. 2015) (describing subject matter jurisdiction as a “threshold issue” that must be addressed before reaching the merits). Subject matter jurisdiction relates to the court's power to hear a case. Holloway v. Pagan River Dockside Seafood, Inc., 669 F.3d 448, 453 (4th Cir. 2012). A motion under Rule 12(b)(1), which governs dismissal for lack of subject matter jurisdiction, raises the question of “whether [the plaintiff] has a right to be in the district court at all and whether the court has the power to hear and dispose of [the] claim.” Id. at 452. “The burden of establishing subject matter jurisdiction rests with the plaintiff.” Demetres v. East West Constr., Inc., 776 F.3d 271, 272 (4th Cir. 2015). When evaluating a Rule 12(b)(1) motion to dismiss, the court may consider evidence outside the pleadings and should grant the motion “only if the material jurisdictional facts are not in dispute and the moving party is entitled to prevail as a matter of law.” Richmond, Fredericksburg & Potomac R.R. Co. v. United States, 945 F.2d 765, 768 (4th Cir. 1991). “[W]hen a federal court concludes that it lacks subject-matter jurisdiction, the court must dismiss the complaint in its entirety.” Arbaugh v. Y & H Corp., 546 U.S. 500, 514 (2006).

         Because Plaintiffs assert only state law claims in this action, the sole basis upon which they can claim federal subject matter jurisdiction is diversity of citizenship. Diversity jurisdiction exists when a case is between “citizens of different States” and the amount in controversy exceeds $75, 000. 28 U.S.C. § 1332(a). UNC-Chapel Hill argues that this case is not between “citizens of different States” because the University is not a “citizen” of any state. Its argument stems from the well-established principle that a state is not a “citizen” for purposes of diversity jurisdiction-a principle that also extends to any public entity that is “the arm or alter ego of the State.” S.C. Dep't of Disabilities & Special Needs v. Hoover Universal, Inc., 535 F.3d 300, 303 (4th Cir. 2008) (quoting Moor v. Cty. of Alameda, 411 U.S. 693, 717 (1973)). Because the requirements of diversity jurisdiction cannot be satisfied when any party is not a “citizen, ” the jurisdictional issue in this case turns on whether UNC-Chapel Hill is an arm or alter ego of the State of North Carolina.

         A. Courts Have Historically “Treated” the University of North Carolina As An Arm of the State[2]

         The Fourth Circuit has not definitively held that the University of North Carolina (“UNC”) is an arm or alter ego of the State, though it has treated UNC as such, and numerous district courts have either specifically held or merely assumed that UNC and its constituent universities are arms and alter egos of the State. In Huang v. Board of Governors of the University of North Carolina, the Fourth Circuit held that UNC could not be sued for money damages because the State had not waived its Eleventh Amendment immunity. 902 F.2d 1134, 1139 (4th Cir. 1990). By extending the State's Eleventh Amendment protection to UNC, the Fourth Circuit necessarily assumed that UNC was an arm or alter ego of the State. See Md. Stadium Auth. v. Ellerbe Becket Inc., 407 F.3d 255, 263 (4th Cir. 2005) (citing Huang as an example of a case in which the Fourth Circuit treated a public university as an arm of the state). A district court in this circuit, however, squarely addressed the issue in Roberson v. Dale, 464 F.Supp. 680 (M.D. N.C. 1979). Considering a set of factors similar to the factors later articulated by the Fourth Circuit, the Court held in Roberson that UNC and UNC-Chapel Hill are alter egos of the State of North Carolina and therefore not “citizens” for purposes of diversity jurisdiction. Id. at 686, 689; see also Webb v. Univ. of N.C. at Chapel Hill, No. 1:15cv268-LCB-JEP, ECF No. 13 at 8 (M.D. N.C. Mar. 30, 2016) (citing Roberson and holding that UNC-Chapel Hill is an “alter ego of the State of North Carolina” and is therefore not a person within the meaning of § 1983), aff'd per curiam, No. 16-1481, 2017 WL 35798 (4th Cir. Jan. 4, 2017). Further, like the Fourth Circuit in Huang, courts in this district have also treated UNC and its constituent universities as arms or alter egos of the State. See, e.g., Costello v. Univ. of N.C. at Greensboro, 394 F.Supp.2d 752, 756 (M.D. N.C. 2005); Hooper v. North Carolina, 379 F.Supp.2d 804, 812 (M.D. N.C. 2005); Alston v. N.C. A & T State Univ., 304 F.Supp.2d 774, 782 (M.D. N.C. 2004); Bd. of Governors of the Univ. of N.C. v. Helpingstine, 714 F.Supp. 167, 174-75 (M.D. N.C. 1989). This treatment of UNC and its constituent institutions is consistent with numerous cases holding that various state universities are arms or alter egos of the state. See, e.g., Md. Stadium Auth., 407 F.3d at 256, 262-63, 265 (stating that courts are “[a]lmost universal[]” in deciding that state universities are arms of the state and, after evaluating the University System of Maryland, holding that it is an alter ego of Maryland); Richardson v. S. Univ., 118 F.3d 450, 453-56 (5th Cir. 1997) (noting that the majority of decisions have concluded that state universities are arms of the state and concluding, after evaluating Southern University and A&M College, that it is an arm of the State of Louisiana); Watson v. Univ. of Utah Med. Ctr., 75 F.3d 569, 575 (10th Cir. 1996) (“Our cases have consistently found state universities are arms of the state.”).

         The cases cited above, however, are not controlling on the issue of whether UNC is an arm or alter ego of the State of North Carolina. Though this Court directly addressed the issue in Roberson, it did so prior to Ram Ditta v. Maryland National Capital Park and Planning Commission, in which the Fourth Circuit articulated the specific factors to be considered along with analysis on how courts should weigh any given factor. 822 F.2d 456, 457-460 (4th Cir. 1987). Also, while a district court decision may be persuasive, it is not binding even within the same district. See Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 430 n.10 (1996) (stating that each judge within a district “sits alone and renders decisions not binding on the others”). Nor does the Fourth Circuit's decision in Huang resolve the issue, as the court assumed UNC was entitled to the State's Eleventh Amendment immunity without squarely addressing whether UNC was an arm or alter ego of the State. See Brecht v. Abrahamson, 507 U.S. 619, 631 (1993) (explaining that the Court was free to address an issue on the merits when it had “never squarely addressed the issue” but rather assumed its answer); Fernandez v. Keisler, 502 F.3d 337, 343 n.2 (4th Cir. 2007) (“We are bound by holdings, not unwritten assumptions.”); accord Passmore v. Astrue, 533 F.3d 658, 660 (8th Cir. 2008) (“[W]hen an issue is not squarely addressed in prior case law, we are not bound by precedent through stare decisis.”); Sakamoto v. Duty Free Shoppers, Ltd., 764 F.2d 1285, 1288 (9th Cir. 1985) (“[U]nstated assumptions on non-litigated issues are not precedential holdings binding future decisions.”). Finally, despite overwhelming authority that state universities are typically arms or alter egos of the state, the Fourth Circuit has held that “each state university must be evaluated in light of its unique characteristics.” Md. Stadium Auth., 407 F.3d at 263 (quoting Univ. of R.I. v. A.W. Chesterton Co., 2 F.3d 1200, 1204 (1st Cir. 1993)).

         In light of the preceding discussion and this Court's obligation to determine whether it possesses subject matter jurisdiction before proceeding, the Court finds it necessary to squarely address whether UNC-Chapel Hill is an arm or alter ego of the State of North Carolina, utilizing the factors articulated by the Fourth Circuit.

         B. The Arm-of-the State Factors Must be Applied to UNC

         Plaintiffs have sued UNC-Chapel Hill in this action. Plaintiffs' argument in support of subject matter jurisdiction, however, is based almost entirely on an arm-of-the state analysis focused on a single department at UNC-Chapel Hill, the Department of Athletics. (See generally ECF No. 57 at 4, 19-28.) Plaintiffs argue that the allegations in this case center on UNC-Chapel Hill's Department of Athletics and thus the financial independence of the Department is relevant and essential to the jurisdictional issues in this case. (Id. at 4.) According to Plaintiffs, the Department of Athletics is supported wholly by private funding and operates as an autonomous entity not subject to State oversight. (See id. at 5-11, 12-15, 20-21.) Plaintiffs, however, cite no legal authority to support the arm-of-the state focus that they urge this Court to consider.

         UNC-Chapel Hill counters that Plaintiffs improperly attempt to tie their arm-of-the state analysis to the relief they seek rather than to the nature of the entity alleged to be an arm-of-the state “as Eleventh Amendment jurisprudence demands.” (ECF No. 58 at 29; see also id. at 2-3.) Further, it argues that, “there is no legal support for separating the Department [of Athletics] from [UNC-Chapel Hill, ] much less the UNC system as a whole, when conducting the arm-of-the-state analysis.” (Id. at 29-30.) This Court agrees with UNC-Chapel Hill.

         Contrary to Plaintiffs' assertion that the “allegations in this case center on the UNC Athletics Department, ” (ECF No. 57 at 4), Plaintiffs' claims, as UNC-Chapel Hill points out, “only tangentially involve athletics;” rather their claims “center on allegedly irregular classes offered by an academic department” at UNC-Chapel Hill, (ECF No. 58 at 28). Further, Plaintiffs allege in their Complaint that UNC-Chapel Hill is systematically depriving Plaintiffs of the education they were promised, (ECF No. 4 ¶¶ 9-10), and in their brief, characterize this case as involving “the largest academic fraud in U.S. history, ” (ECF No. 57 at 1). Thus, it appears that Plaintiffs' claims are centered on the core mission of UNC and its constituent institutions including UNC-Chapel Hill-that of providing quality educational services for the State of North Carolina, which includes, but is not limited to, athletics. See W.Va. Univ. Bd. of Governors v. Rodriguez, 543 F.Supp.2d 526, 531, 535 (N.D. W.Va. 2008) (explaining that providing education is a proper function of state government and “the carrying on of an athletic program is an important and necessary element in the educational process, especially at institutions of higher learning” (quoting Kondos v. W.Va. Bd. of Regents, 318 F.Supp. 394, 396 (S.D. W.Va. 1970), aff'd per curiam, 441 F.2d 1172 (4th Cir. 1971))).

         In addition, courts have rejected efforts to base an arm-of-the-state analysis, when evaluating Eleventh Amendment Immunity, on a single department within a university, even where the department receives substantial private funds, as Plaintiffs argue is the case here. See, e.g., Miranda v. Univ. of Md., No. AW-04-2609, 2005 U.S. Dist. LEXIS 3944, at *18-19 (D. Md. Feb. 9, 2005) (rejecting the plaintiff's argument that the Eleventh Amendment does not apply to a university because the department providing dining services to students and the university community was self-supported by non-public funds); Hoeffner v. Univ. of Minn., 948 F.Supp. 1380, 1388 (D. Minn. 1996) (rejecting the plaintiff's argument that the proprietary functions of the university's hospital and clinic altered the university's relationship with the state in a manner sufficient to have Eleventh Amendment significance because the plaintiff sued the university as a whole and, thus, the relevant inquiry “concentrate[s] only upon the State's control over the operative State entity [the university], and the impact that an award of damages would have upon the State's treasury” (emphasis added)); see also Watson, 75 F.3d at 575-77 (noting that, despite receiving minimum funding from the state, the university medical center was not autonomous from the university or the state, but rather an integral part of the university, an arm of the state, and thus entitled to Eleventh Amendment immunity).

         Finally, the Fourth Circuit has recognized that the UNC system “is, by definition, one agency, ” rather than “separate, independent agencies.” Bd. of Governors of Univ. of N.C. v. U.S. Dep't of Labor, 917 F.2d 812, 816 (4th Cir. 1990). To adopt Plaintiffs' argument that the arm-of-the-state analysis should be applied solely to the Department of Athletics, this Court would essentially treat the Department as an entity separate and distinct from UNC-Chapel Hill and the UNC system, which it is not. As UNC-Chapel Hill argues, “[s]overeignty of the UNC system as a whole cannot reasonably hinge on the alleged involvement of a single department of one UNC constituent institution.” (ECF No. 58 at 2.)

         Plaintiffs have failed to persuade this Court that it should base its arm-of-the-state analysis on facts related exclusively to the Department of Athletics at UNC-Chapel Hill. The Court will, therefore, consider facts relevant to the UNC system, including UNC-Chapel Hill, in its arm-of-the-state analysis. This Court will not consider the arm-of-the-state factors in the context of a single department at UNC-Chapel Hill as urged by Plaintiffs.

         C. Arm-of-the-State Factors Applied

         To determine whether a public entity is an arm or alter ego of the state, and therefore not a “citizen” for purposes of diversity jurisdiction, the ...


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