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STC.UNM v. Quest Diagnostics Inc.

United States District Court, D. New Mexico

July 23, 2018

STC.UNM, Plaintiff,
v.
QUEST DIAGNOSTICS INCORPORATED and QUEST DIAGNOSTICS CLINICAL LABORATORIES, INC., Defendants.

          MEMORANDUM OPINION AND ORDER

          MARTHA VÁZQUEZ UNITED STATES DISTRICT JUDGE

         THIS MATTER comes before the Court on STC.UNM's Objection to Order Permitting Limited Discovery (Doc. 38) (“Objection”) [Doc. 39]. The Court, having considered the objection, briefs, and relevant law, and being otherwise fully informed, finds that the Objection is not well-taken and will be overruled.

         BACKGROUND

         Plaintiff commenced this action in New Mexico State District Court, Second Judicial District Court, in Bernalillo County, and asserted contract claims against Defendants based on a 2006 License Agreement. Defendants then removed the action to this Court, asserting federal question and diversity jurisdiction. Thereafter, Defendants filed declaratory judgment counterclaims regarding patent issues.

         Plaintiff filed a motion to dismiss and a motion to remand on December 7, 2017 and December 8, 2017, respectively. Both motions are based in part on Plaintiff's argument that it is an arm of the State of New Mexico, and thus is entitled to sovereign immunity under the Eleventh Amendment. Docs. 10, 12. In support of its motion to dismiss, Plaintiff filed a declaration of Elizabeth Kuuttila, Chief Executive Officer and Chief Economic Development Officer of STC.UNM, and attached several exhibits, which address the issue of Plaintiff's Eleventh Amendment immunity. Doc. 11. In response to Plaintiff's motions, on December 13, 2017, Defendants filed a motion requesting discovery “limited to the issues of establishing that STC.UNM is not entitled to either common law or Eleventh Amendment sovereign immunity (and/or has waived any claim to such immunity).” Doc. 17. According to Defendants, such discovery is necessary in order to respond to Plaintiff's motions to dismiss and to remand. Id.

         On January 31, 2018, this Court referred to Magistrate Judge Karen B. Molzen Plaintiff's motion to remand. Doc. 37. On March 7, 2018, Judge Molzen entered an Order Permitting Limited Discovery by Deposition (“the Order”), determining that Defendants' motion for discovery, as limited in her Order, was well-taken. Doc. 38. Specifically, the Order authorizes limited discovery in the form of a deposition of Ms. Kuuttila regarding the contents of her declaration and attached exhibits and the day-to-day activities of STC.UNM that bear on its autonomy from the state. Id. On the instant Objection, Plaintiff argues that by granting Defendants limited discovery, the Order “misapplies the law on sovereign immunity and constitutes clear legal error.” Doc. 39 at 2.

         STANDARD

         Because the Order granting discovery is not dispositive of this case, under Rule 72(a) of the Federal Rules of Civil Procedure and 28 U.S.C. Section 636(b)(1)(A), this Court must defer to Judge Molzen's “ruling unless it is clearly erroneous or contrary to law.” Hutchinson v. Pfeil, 105 F.3d 562, 566 (10th Cir. 1997) (holding that “[d]iscovery is a nondispositive matter”). Specifically, Rule 72(a) provides that, on “timely objections” to a magistrate judge's order on a non-dispositive matter, “the district court must . . . modify or set aside any part of the order that is clearly erroneous or is contrary to law.” Fed.R.Civ.P. 72(a); see also 28 U.S.C. § 636(b)(1)(A) (district judge may “reconsider any pretrial matter . . . where it has been shown that the magistrate judge's order is clearly erroneous or contrary to law”). 28 U.S.C. § 636(b)(1)(A). The clearly erroneous standard “requires that the reviewing court affirm unless it on the entire evidence is left with the definite and firm conviction that a mistake has been committed.” Ocelot Oil Corp. v. Sparrow Indus., 847 F.2d 1458, 1464 (10th Cir. 1988) (citation omitted). As the Seventh Circuit has articulated the standard, to be clearly erroneous “a decision must strike [the court] as more than just maybe or probably wrong; it must . . . strike [the court] as wrong with the force of a five-week-old, unrefrigerated dead fish.” Parts & Elec. Motors, Inc. v. Sterling Elec., Inc., 866 F.2d 228, 233 (7th Cir. 1988).

         DISCUSSION

         In its Objection, Plaintiff argues that the Order permitting Defendants limited discovery is clearly erroneous and contrary to law because Eleventh Amendment immunity is a question of federal law reviewed de novo, and thus the Court need make no factual inquiry in determining whether Plaintiffs are entitled to remand and dismissal of Defendants' counterclaims. Doc. 39 at 7. According to Plaintiff, the law is clear that nothing beyond state law is relevant to the immunity determination, “including deposition testimony, policies, procedures, and course of conduct evidence.” Id. at 8. Further, Plaintiff argues that under Tenth Circuit law, “discovery is prohibited pending determination of [the immunity] jurisdictional challenge.” Id. at 10.

         The Court agrees that “Eleventh Amendment immunity is a question of federal law and [the appellate court's] review is de novo, ” and that, while the court gives “deference to state court decisions regarding whether a given entity is an arm of the state, ” it does “not view these rulings as dispositive.” Steadfast Ins. Co. v. Agric. Ins. Co., 507 F.3d 1250, 1253 (10th Cir. 2007). The Court, however, does not equally agree that it follows that, when making its immunity determination, the district court is prohibited either from considering the factual circumstances of the case before it or from ordering limited discovery to aid in its determination.[1] Plaintiff has not cited, and the Court has not found, any authority to support its position that the court not only need not, but may not engage in a factual inquiry in determining whether it is entitled to Eleventh Amendment immunity or permit limited discovery to aid in its determination.

         Indeed, in Steadfast, the Tenth Circuit explained that the analysis of whether an entity is an arm of the state for Eleventh Amendment immunity purposes “depends, in large part, upon [the court's] analysis of the nature of the entity created by state law, ” and the court must “consider the status of the [entity] anew.” Id. at 1253-54. In determining whether an entity constitutes an arm of the state, the court looks to four primary factors:

First, [the court] assess[es] the character ascribed to the entity under state law. Simply stated, [the court] conduct[s] a formalistic survey of state law to ascertain whether the entity is identified as an agency of the state. Second, [the court] consider[s] the autonomy accorded the entity under state law. This determination hinges upon the degree of control the state exercises over the entity. Third, [the court] stud[ies] the entity's finances. Here, [the court] look[s] to the amount of state funding the entity receives and consider[s] whether the entity has the ability to issue bonds or levy taxes on its own behalf. Fourth, [the court] ask[s] whether the entity in question is concerned primarily with local or state affairs. In answering this question, [the court] examine[s] the agency's function, composition, and purpose.

Id. at 1253. By necessity, the third and fourth factors of this test, namely, the entity's finances and the entity's focus on local versus state affairs, ...


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