There is no Right to Sue a State Entity in Federal Court
Roger Brown sued Citizens Property Insurance Corporation, alleging various state law claims connected to a settlement agreement. The district court dismissed the action when it found that the corporation was an arm of the state based on the Eleventh Amendment to the U.S. Constitution that provides: “The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State” it dismissed the suit. Brown appealed.
In Roger Brown v. Citizens Property Insurance Corporation, Unknown Employees Of Citizens Property Insurance Corporation, No. 20-11607, United States Court Of Appeals For The Eleventh Circuit (February 4, 2021) the Eleventh Circuit was asked to reverse the decision of the District Court that found Citizens Property Insurance Corporation (CPIC) was established by the Florida legislature to provide “affordable property insurance.” Fla. Stat. § 627.351(6)(a)1. And the Florida legislature further described CPIC as “a government entity that is an integral part of the state, and that is not a private insurance company.” As an entity of the state of Florida the District Court concluded its jurisdiction was barred by the Eleventh Amendment.
In 2011, Brown co-owned property in Clearwater, Florida. The trouble was that his property was adjacent to a designated sinkhole property. So he submitted a claim to his property’s insurer, CPIC. His claim was disputed, but the ensuing litigation was settled in 2014. That same year, Brown’s property was foreclosed, with the final judgment of foreclosure assigned to the Federal National Mortgage Association (FNMA).
CPIC wrote a check for about half the settlement amount, made jointly to Brown and FNMA. Because Brown had not dealt with FNMA before, he sought to get it reissued in his name only. But each time Brown demanded payment, CPIC continued to issue joint checks. Eventually Brown sued in federal district court against CPIC and “unknown employees” of that corporation. Brown’s amended complaint alleged breach of contract, conversion, unjust enrichment, intentional breach of fiduciary duty, and intentional infliction of severe emotional distress.
CPIC filed a successful motion to dismiss for lack of subject matter jurisdiction, citing Eleventh Amendment immunity.
Brown argued that Congress can abrogate sovereign immunity, that he could still sue tbecause Florida had waived its immunity, and that CPIC is not an arm of the state.
The District Court noted the language of the state statute, and that “courts regularly recognize [CPIC]’s status as a state government entity.” It also found that Florida never explicitly waived CPIC’s “immunity from suit in federal court.”
Eleventh Amendment immunity bars suits by private individuals in federal court against a state unless the state has consented to be sued or has waived its immunity or Congress has abrogated the states’ immunity. Whether an entity is an arm of the state is determined based on four factors:
- how the state law defines the entity;
- the degree of state control over the entity;
- where the entity derives its funds; and
- who is responsible for judgments against the entity.
The Florida legislature defined CPIC as “a government entity,” and specifically noted that it was “not a private insurance company.” Fla. Stat. § 627.351(6)(a)1. As for the second factor, CPIC operates pursuant to a plan “approved by order of the Financial Services Commission,” which is “subject to continuous review.” Fla. Stat. § 627.351(6)(a)2.
Even if CPIC is an arm of the state, Brown claimed Florida waived the entity’s Eleventh Amendment immunity. The test to determine if a state has waived its sovereign immunity is a stringent one. A waiver of Eleventh Amendment immunity must specifically permit suits in federal court. It is true that the Florida Statutes explicitly state that the liability and cause of action shield does not extend to every circumstance; such exceptions include “willful tort” and “breach of any contract or agreement pertaining to insurance coverage.” Fla. Stat. § 627.351(6)(s)1. But, without more, that just means Florida waived immunity for certain suits in state courts.
The Eleventh Circuit concluded that nothing for which Brown sought discovery would have been relevant to the district court’s finding of Eleventh Amendment immunity as to CPIC—and that finding turns out to be dispositive. As a general matter, fictitious-party pleading is not permitted in federal court. Although federal courts have a “limited exception” to that rule for when the plaintiff still provides some specific description of the defendant, Brown did not reach that standard.
The USCA stated sympathy for Brown’s apparent predicament. But, because CPIC is an arm of the state, Eleventh Amendment immunity bars him from bringing his claims in federal court.
It is important that every lawyer reads and understands the U.S. Constitution. The Eleventh Amendment, coming after the Bill of Rights, is easy to miss, but clearly deprives the Federal Courts of the jurisdiction over a suit by an individual against a state entity. By so doing it limits that right to suits in state court if the state entity has waived sovereign immunity. Brown could have sued in state court but would have probably run into the sovereign immunity situation. Ignored by the court is the fact is that FNMA as a mortgagee has the right to the proceeds of a claim up to the amount of its interest.
© 2021 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
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