Rosemarie Cipparulo, (Argued), Weissman & Mintz LLC, Somerset, NJ, for Appellants.

Louis Lessig, (Argued), William M. Tambussi, Brown & Connery, LLP, Westmont, NJ, for Appellee.

Before BARRY and AMBRO, Circuit Judges, and POLLAK,* District Judge.

POLLAK, District Judge.

Appellants Herminio Febres, Larry Williams, David Sims, Derek Copeland, Charles Smith, Juan Diaz, Nelson Alexander, and now-deceased Angel Pagan and Robert Hawkins were employed by the appellee Camden Board of Education ("Board") as custodians and mechanics. On or about June 26, 2000, they were fired for excessive absenteeism. Appellants brought this suit in the United States District Court for the District of New Jersey, invoking the self-care provision of the Family and Medical Leave Act of 1993 ("FMLA"), 29 U.S.C. § 2612(a)(1)(D), to contest their terminations. The District Court granted appellee's motion to dismiss on Eleventh Amendment jurisdictional grounds, holding that the Board is an "arm of the state." Cf. Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, 280, 97 S. Ct. 568, 50 L. Ed. 2d 471 (1977). The District Court concurrently denied appellants' motion for leave to amend their complaint to add claims under 42 U.S.C. § 1983 against various school district administrators and officials of the Board.

Appellants now appeal the District Court's order. Appellants' primary target is the Eleventh Amendment ruling: if we reverse the District Court's jurisdictional ruling, then we are not asked to address the denial of appellants' motion for leave to amend.

We have appellate jurisdiction under 28 U.S.C. § 1291. Our review is plenary. See Farley v. Phila. Housing Auth., 102 F.3d 697 (3d Cir.1996). Because we conclude that the Board has not established it is an arm of the state, we will reverse.

The Eleventh Amendment provides unconsenting states with immunity from suits brought in federal courts by private parties. See Edelman v. Jordan, 415 U.S. 651, 94 S. Ct. 1347, 39 L. Ed. 2d 662 (1974). The Supreme Court has long held that counties, municipalities and political subdivisions of a state are not protected by the Eleventh Amendment. See Mt. Healthy, 429 U.S. at 280, 97 S. Ct. 568; see also Bolden v. Se. Pa. Transp. Auth., 953 F.2d 807, 814 (3d Cir.1991) (en banc). School boards and school districts are typically considered political subdivisions of a state, not entitled to immunity. See, e.g., Mt. Healthy, 429 U.S. at 280-281, 97 S. Ct. 568; Lester H. v. Gilhool, 916 F.2d 865, 870-71 (3d Cir.1990). In some cases, however, such entities may be viewed as "arm[s] of the State partaking of the State's Eleventh Amendment immunity . . . ." Mt. Healthy, 429 U.S. at 280, 97 S. Ct. 568; see Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 101, 104 S. Ct. 900, 79 L. Ed. 2d 67 (1984) (holding that the Eleventh Amendment bars actions in federal court whenever "the state is the real, substantial party in interest"). The party asserting immunity bears the burden of production and persuasion. See Christy v. Pa. Turnpike Comm'n, 54 F.3d 1140, 1144 (3d Cir.1995).

More than thirty-five years ago the Third Circuit identified nine factors to be considered when determining whether an entity is an arm or alter ego of the state for Eleventh Amendment purposes. Urbano v. Bd. of Managers, 415 F.2d 247, 250-51 (3d Cir.1969). The numerous factors articulated in Urbano were subsequently condensed into three major criteria: (1) whether the payment of the judgment would come from the state, (2) what status the entity has under state law, and (3) what degree of autonomy the entity has. Fitchik v. N.J. Transit Rail Operations, Inc., 873 F.2d 655, 659 (3d Cir.1989) (en banc).1 The three-part test — sometimes referred to as the Fitchik test — has been reiterated and applied many times since. See, e.g., Carter v. City of Phila., 181 F.3d 339, 347 (3d Cir. 1999); Christy, 54 F.3d at 1144-45; Peters v. Del. River Port Auth., 16 F.3d 1346, 1350-52 (3d Cir.1994); Bolden, 953 F.2d at 816.

We now accord equal consideration to all three prongs of the analysis — payment from the state treasury, status under state law, and autonomy. Benn v. First Judicial Dist. of Pa., 426 F.3d 233, 239-40 (3d Cir.2005).2 However, in Hess v. Port Authority Trans-Hudson Corp., the Supreme Court instructed that in close cases, where "indicators of immunity point in different directions," 513 U.S. 30, 47, 115 S. Ct. 394, 130 L. Ed. 2d 245 (1994), the principal rationale behind the Eleventh Amendment — protection of the sovereignty of states through "the prevention of federal-court judgments that must be paid out of a State's treasury," id. at 48, 115 S. Ct. 394 — should "remain our prime guide." Id. at 47, 115 S. Ct. 394; see id. at 52, 115 S. Ct. 394 (identifying states' solvency and dignity as the concerns underpinning the Eleventh Amendment).

The controversy over classification of the Camden Board of Education centers around the first and third criteria of the Fitchik test. The Board's legal status under state law, the second criterion, clearly militates against immunity.

Four sub-factors are relevant to assessing the Board's legal status under state law: how state law treats the Board generally, whether the Board can sue or be sued in its own right, whether the Board is separately incorporated, and whether it is immune from state taxation. See, e.g., Carter, 181 F.3d at 347 n. 22; Fitchik, 873 F.2d at 662-63. As the District Court noted in its oral opinion, the Board can sue or be sued under state law, is separately incorporated, and is not immune from state taxation. See N.J. Stat. Ann. §§ 18A:10-1, 11-2. Moreover, New Jersey state law generally treats school boards as separate political subdivisions. See id. § 18A:10-1; see, e.g., Otchy v. Elizabeth Bd. of Educ., 325 N.J.Super. 98, 737 A.2d 1151 (1999) (noting that under state law a school board is a distinct legal entity, which, for example, may hold property in its name).

In 2002, the New Jersey legislature enacted the Municipal Rehabilitation and Economic Recovery Act ("MRERA"), N.J. Stat. Ann. §§ 52:27BBB-1 to -65, which provides that a municipality fulfilling specified criteria3 will be designated a "qualified municipality" and subjected to a series of measures to try to alleviate its ongoing fiscal distress. See N.J. Stat. Ann. §§ 52:27BBB-1 to -3, -7 to -30. Camden has been so designated. See Camden City Bd. of Educ. v. McGreevey, 369 N.J.Super. 592, 850 A.2d 505 (2004) (upholding the MRERA). The MRERA also provides for "limited school district oversight" in these qualified municipalities. N.J. Stat. Ann. § 52:27BBB-2.1(c)-(d); see id. §§ 52:27BBB-63 to -64 (regarding appointment of school board members and gubernatorial veto power).

The District Court suggested that the Governor's power, under the MRERA, to veto actions taken at school board meetings abrogated the Board's status as a separate political entity. Cf. id. § 52:27BBB-64. This, however, conflates the second and third criteria of the Fitchik test; the gubernatorial veto is better addressed with regard to the Board's autonomy. See discussion infra; Fitchik, 873 F.2d at 660, 663-64 (addressing gubernatorial veto power under the autonomy prong of the arm-of-the-state analysis).

In sum, the various factors relating to the Board's "status under state law" support appellants' contention that the Board is not an arm of the state and therefore not entitled to immunity.

The District Court concluded that the "autonomy factor" weighed heavily in favor of immunity based on the MRERA's grant of veto and appointment powers to the Governor. We find that this factor weighs only slightly in favor of the Board's immunity.

According to the MRERA, the minutes of any meeting of the Board must be delivered to the Governor. Further, according to the Act, the actions taken by the Board at a meeting become effective fifteen days after delivery, unless during the fifteen-day period the Governor (1) approves the minutes, in which case the Board's actions become effective upon that approval, or (2) vetoes any action taken by the Board at that meeting, in which case the vetoed action does not take effect. See N.J. Stat. Ann. § 52:27BBB-64(b).

We note that the Governor's veto power is constrained, in accord with the "limited school district oversight" the MRERA describes, since the Governor has a limited period to respond to the Board's actions, and the default remains that the Board's actions have force or effect after approximately two weeks. Moreover, the Board continues to control its agenda, pursuant to its powers to act under N.J. Stat. Ann. § 18A:11-1.

The MRERA also grants the Governor the power to appoint members of the Board: the Act provides for a temporary increase in the size of the school board from nine members to twelve, to allow the Governor to appoint three members. See N.J. Stat. Ann. § 52:27BBB-63(h). The MRERA states that "to ensure substantial local representation on any such board, in no case shall the number of the positions appointed by the [municipality's] mayor and elected by the voters, combined, constitute less than a majority of the total positions on the board." Id. § 52:27BBB-63(a).

The Board argues, by way of comparison, that it is significantly less autonomous than entities which have been held not to be arms of the state, and cites Kovats v. Rutgers, 822 F.2d 1303, 1312 (3d Cir.1987) (holding that Rutgers University was "largely autonomous and subject only to minimal state supervision and control"). (Appellees' Brief at 9.) We note, however, that even in the case of Rutgers University, members of the University's two governing bodies were appointed by the Governor with the advice and consent of the state senate. Rutgers, 822 F.2d at 1311 (noting that at least six of the eleven members of the Board of Governors were appointed in this way, and that the eleven state-appointed members of the Board of Trustees were responsible for, in turn, selecting up to fifty additional trustees to serve with them).

Gubernatorial appointment of board members typically weighs only "slightly" in favor of immunity. See, e.g., Christy, 54 F.3d at 1149 (finding that the state controlled the membership of the Pennsylvania Turnpike Commission and holding, on balance, that this weighed "slightly" in favor of alter ego status and immunity); Peters, 16 F.3d at 1351-52 (finding that New Jersey and Pennsylvania appointed all sixteen members of the Board of Commissioners of the Delaware River Port Authority and holding that this weighed "slightly" in favor of alter ego status and immunity); Bolden, 953 F.2d at 820 (finding that the state appointed one-third of SEPTA's board members but holding that SEPTA was autonomous).

While we agree that in the case before us the Board may be subject to more overall state oversight than Rutgers University, we note that other entities which have been held by this Court not to be arms of a state have been subject to state controls strikingly similar to those placed upon the Board. Fitchik v. N.J. Transit Rail Operations, Inc. offers a close comparison to the case before us: "three out of seven of the [New Jersey Transit] board members [were] required to be members of the [state's] executive branch, and the Governor ha[d] veto power over the board's actions." 873 F.2d at 663 (citing N.J. Stat. Ann. § 27:25-4). Much like the Camden Board of Education, New Jersey Transit ("NJT") was required to deliver minutes of its board meetings to the Governor, so that, within the designated time period, the Governor could veto any proposed board action. See N.J. Stat. Ann. § 27:25-4(f); see also Fitchik, 873 F.2d at 663; id. at 668 (Rosenn, J., dissenting). We held that while NJT was "not `highly autonomous' like Rutgers," it was still "significantly autonomous" and concluded that the autonomy factor only "counsel[ed] slightly in favor of according immunity to NJT." Fitchik, 873 F.2d at 664; see also Hess, 513 U.S. at 47, 115 S. Ct. 394 (finding that the Port Authority was not an arm of the states of New York and New Jersey, even though the "States appoint and can remove the commissioners, the Governors can veto Port Authority actions, and the States' legislatures can determine the projects the Port Authority undertakes").

Guided by our case law, we find that the autonomy factor slightly favors the Board's immunity. Since the Board's legal status, supra, plainly suggests the opposite result, we observe that the indicators of immunity point in different directions. Thus, the question of the state's financial liability — which we turn to next — is particularly significant. Cf. Hess, 513 U.S. at 47, 48-50, 115 S. Ct. 394.

C. The State Treasury's Liability for the Payment of the Judgment

In support of its holding, the District Court referenced a prior New Jersey district court opinion, which found that the Camden Board of Education was entitled to alter ego status because of its limited autonomy and "[b]ecause the vast majority of the School Board's funding [came] from the State of New Jersey." Camden County Recovery Coal. v. Camden Bd. of Educ., 262 F. Supp. 2d 446, 450 (D.N.J.2003) (granting the Board's cross-motion to dismiss, and dismissing as moot an order to show cause why a preliminary injunction, requested by plaintiffs, should not be granted). The Camden County Recovery Coalition court reported that approximately 85% to 90% of the Board's monies came from the state, and concluded this left "no question" that "any judgment against the School Board [would] lead to the direct expenditure of state funds in order to comply with such a judgment." Id. at 449.

In the case at bar, the District Court's analysis of the Fitchik prong that we will term the "state-treasury criterion"4 similarly attributed overwhelming significance to the fact that Camden is "almost entirely State funded." (A34.) The court reasoned that, given the magnitude of the state's funding, any judgment "would ultimately have to be paid by state funds." (A33.) The District Court acknowledged that this was not because New Jersey bears any affirmative, legal obligation to satisfy a judgment against the Board — either directly or by reimbursing the Board. Rather the court concluded that, as a practical matter, it was inevitable that funds provided by the state would be used to pay a judgment and that such funds would have to be replaced by the state. (A20, A22.) In fact, the District Court concluded that New Jersey's "indirect liability" was so compelling an indicator of immunity that the court deemed all other funding-related considerations irrelevant. (A20, A32.)

On appeal, the Board's argument mirrors the reasoning articulated by the Camden County Recovery Coalition court and the District Court in this case. The Board's brief asserts: "If the [Board's] only significant revenue stream is the State of New Jersey, it stands to reason that any judgment owed would in fact be coming directly from State funding, even though it is commingled with a minuscule amount of funds from the local municipality." (Appellees' Brief at 7.) At oral argument, the Board also contended that practical necessity would require New Jersey to replenish any funds used by the Board to pay a judgment. The Board argues that immunity is appropriate where the state makes such an "overwhelming financial contribution." (Appellees' Brief at 5.)

As explained infra, we find the Board's assertions, and the District Court's corresponding conclusions, unsupported by the record. Moreover, close consideration of our case law leads us to conclude that the Board's central argument side-steps the crux of the state-treasury criterion — whether the state treasury is legally responsible for the payment of a judgment against the Board. Contrary to the Board's contention, the fact that New Jersey is the principal source of the Board's finances does not alone confer immunity, or even compel a finding that this prong of the analysis favors immunity. See Rutgers, 822 F.2d at 1308, 1312;5 see also Mt. Healthy, 429 U.S. at 280, 97 S. Ct. 568. We must consider the nature of the state's financial contributions to the Board.

1. State Funds Contributed to the Board's Budget

Whether an entity claiming immunity has, or can raise, sufficient funds to satisfy a judgment has typically been a factor in our state-treasury analysis. See, e.g., Peters, 16 F.3d at 1350; Fitchik, 873 F.2d at 659-60. In the instant case, the District Court concluded that payment of a judgment would necessarily come from the portion of the Board's budget received from the state. We find this unsupported. The record before us indicates that Camden schools receive revenue from a number of sources. While non-state funds comprise a relatively small percent of the Board's budget, they still total a significant sum, with nearly $7.5 million in local taxes and nearly $25 million in federal grants in 2004-2005. (A48.)6 In addition, the Board is statutorily authorized to raise revenues through taxes, pursuant to the Comprehensive Educational Improvement and Financing Act, N.J. Stat. Ann. § 18A:7F-5(d). Alternatively, to increase funds, the Board could undertake to reduce expenses, cf. Fitchik, 873 F.2d at 661, or, as counsel for the Board acknowledged in the District Court, sell assets (A14-15).

Furthermore, we are not persuaded that it is of legal consequence whether Board funds employed to satisfy a judgment were funds which had initially been provided by the state. The record does not suggest that New Jersey retains ownership or control of the funds appropriated to the Board. (A22.) As we noted in Fitchik, "[w]e do not see [the gubernatorial veto] as indicating state ownership of the money already in [an entity's] accounts. We think it, instead, to be relevant to the third factor . . . [,] autonomy." 873 F.2d at 660; see also Christy, 54 F.3d at 1146 (finding that the state's control over the Pennsylvania Turnpike Commission's "authority to issue bonds, notes, and other obligations falls short of indicating state ownership of funds obtained through the issuance of such bonds, notes, and other obligations" (emphasis in original)). The magnitude of the state's contribution does not alter the fact that, once deposited in the Board's accounts, these funds belong to the Board. If then used to pay a judgment, we can say only that the judgment was satisfied with the Board's monies. Cf. Fitchik, 873 F.2d at 661-62; Rutgers, 822 F.2d at 1308; Blake v. Kline, 612 F.2d 718, 723-24 (3d Cir.1979); cf. also Metcalf & Eddy, Inc. v. Puerto Rico Aqueduct & Sewer Auth., 991 F.2d 935, 941 (1st Cir.1993) (reaching the same conclusion).

It is undisputed that the Camden Board of Education has a relatively poor tax base and is less financially independent than many of the entities we have previously found not clothed with immunity, such as NJT, SEPTA, and Rutgers University. Nonetheless, given what the record before us discloses with respect to the Board's varied sources of existing and potential funds, the Board has not established that it cannot satisfy a judgment with its own monies. Cf. Christy, 54 F.3d at 1146-47.

2. Additional State Funds to Compensate for Payment of a Judgment

While the parties agree that New Jersey is not legally responsible for the Board's unassumed debts, the Board presses us to consider the likely impact of an adverse judgment: The Board alleges that New Jersey would be forced, as a practical matter, to increase its appropriations to refill the Board's coffers, following the Board's payment of a judgment.

Since the state is under no legal obligation to do so, such appropriations — if they were to be made — would constitute a voluntary or discretionary subsidy. (The fact that such a contribution might be sorely needed and greatly appreciated by the Board, would not alter the nature of the state treasury's obligations.) We have long held that a state's voluntary contributions to an entity do not create an Eleventh Amendment jurisdictional bar: "Although the [state] might well choose to appropriate money to [an entity] to enable it to meet a shortfall caused by an adverse judgment, such voluntary payments by a state simply do not trigger Eleventh Amendment immunity." Christy, 54 F.3d at 1147 (internal quotation marks omitted) (emphasis in original); see, e.g., Fitchik, 873 F.2d at 661; Blake, 612 F.2d at 726.7

At the same time, we recognize that some of our case discussions can be read as intimating that attention may properly be given to the derivative consequences for the state that might flow from a substantial judgment against the sued entity. See, e.g., Carter, 181 F.3d at 348 & n. 25 (observing that any judgment would not be paid "directly or indirectly" by the state); Bolden, 953 F.2d at 819 (commenting that a state "might feel compelled as a practical matter to subsidize . . . financially pressed municipalities," but concluding that this "would not necessarily transform the recipients into alter egos of the state" (emphasis added)).

In Hess, the Supreme Court emphasized the import of legal liability, without disavowing practical considerations.8 The Court queried, for example: "Is the State in fact obligated to bear and pay the resulting indebtedness of the enterprise? When the answer is `No' — both legally and practically — then the Eleventh Amendment's core concern is not implicated." Hess, 513 U.S. at 51, 115 S. Ct. 394; id. at 45-46, 115 S. Ct. 394 (assessing the Port Authority's financial independence, as well as the states' legal liability for its debts).9

More recent Supreme Court opinions, such as Auer v. Robbins, 519 U.S. 452, 456 n. 1, 117 S. Ct. 905, 137 L. Ed. 2d 79 (1997) and Regents of the University of California v. Doe, 519 U.S. 425, 117 S. Ct. 900, 137 L. Ed. 2d 55 (1997), shed some further light on the role of state funding in arm-of-the-state analysis. Doe, in particular, illustrates the Court's emphasis on the question of legal liability. There, the Supreme Court, confronting a "narrow question," held that the University of California — an entity for which the state was legally liable and which had previously been deemed an arm of the state — retained immunity even when the state had been indemnified, such that a final judgment would actually be paid by the federal government. Doe, 519 U.S. at 426, 430-31, 117 S. Ct. 900. The case thus stands, at least, for the proposition that an entity's immunity is not vitiated when the state, which is legally liable, does not actually pay a judgment. Although, as a California court later observed, it does "not follow that the converse is also true, i.e., that if an entity uses funds provided by the state to pay a judgment for which the state is not legally liable, there can be no immunity," Kirchmann v. Lake Elsinore Unified Sch. Dist., 83 Cal. App. 4th 1098, 100 Cal. Rptr. 2d 289 (Cal.Ct.App.2000), Doe effectively conveyed the centrality of legal liability: "Of course, the question whether a money judgment against a state instrumentality or official would be enforceable against the State is of considerable importance to any evaluation of the relationship between the State and the entity or individual being sued." Doe, 519 U.S. at 430, 117 S. Ct. 900.10 The Court further explained:

Just as with the arm-of-the state inquiry,. . . with respect to the underlying Eleventh Amendment question it is the entity's potential legal liability, rather than its ability or inability to require a third party to reimburse it, or to discharge the liability in the first instance, that is relevant.

Id. at 431, 117 S. Ct. 900; see Benn, 426 F.3d at 239 (quoting Doe for this proposition); Cash v. Granville County Bd. of Educ., 242 F.3d 219, 224-25 (4th Cir.2001); Duke v. Grady Municipal Schs., 127 F.3d 972, 980-82 (10th Cir.1997).

In view of the controlling Supreme Court jurisprudence, as well as our own conforming case law, we find that the practical or indirect financial effects of a judgment may enter a court's calculus, but rarely have significant bearing on a determination of an entity's status as an arm of the state. A state's legal liability (or lack thereof) for an entity's debts merits far greater weight, and is therefore the key factor in our assessment of the state-treasury prong of the Fitchik analysis.

In the case before us, the Board does not point to any evidence demonstrating that additional funds would, in fact, be provided by the state (as opposed to the Board finding it necessary to draw on the sources discussed supra, such as additional tax levies or sales of assets).11 While we have little doubt that the state has an interest in seeing that Camden's schools remain operational, it would be improper to confer immunity based on our conjecture about the steps New Jersey might take following a judgment. The absence of any legal obligation on the part of New Jersey to provide funds in response to an adverse judgment against the Board is a compelling indicator that the state-treasury criterion — the first prong of the Fitchik test — weighs against immunity. Further, while the record shows that the Board receives very substantial state funding, the Board possesses some alternative sources of revenue, and has not demonstrated that it would be incapable of satisfying a judgment against it, see supra Subsection II.C.1. Thus, we are not in accord with the District Court's view that the state-treasury criterion weighs in favor of finding the Board to be an arm of the state.

The Board's legal status under state law supports the conclusion that it is not an arm of the state of New Jersey. The Board's somewhat constrained autonomy, on the other hand, slightly favors its classification as an arm of the state. Therefore, the state-treasury analysis is decisive in this case, and it counsels against the Board's immunity as an arm of the state. On balance, we hold that the Board has failed to show that it is entitled to Eleventh Amendment immunity. Accordingly, we find that the Board is subject to suit in federal court. The judgment of the District Court will therefore be reversed, and the case remanded for further proceedings.12