OPINION AND ORDER GRANTING DEFENDANT KHESLC'S MOTION TO DISMISS AND DENYING AS MOOT ITS MOTION TO STAY DISCOVERY PENDING RESOLUTION OF THE MOTION TO DISMISS

LINDA V. PARKER, U.S. DISTRICT JUDGE

In this action, filed August 4, 2014, Plaintiff Daniel Skidmore ("Plaintiff") claims that Defendants violated state and federal law by failing to properly process payments made toward his student loans and then by reporting the loans as unpaid to credit reporting agencies. Specifically with respect to Defendant Kentucky Higher Education Student Loan Corporation ("KHESLC"), Plaintiff alleges one count of negligence in an eight-count First Amended Complaint filed March 11, 2015.1 Presently before the Court is KHESLC's motion to dismiss and motion to stay discovery pending resolution of its motion to dismiss. The motions have been fully briefed.

KHESLC seeks dismissal of Plaintiff's claim against it, arguing first that as an arm of the State of Kentucky, it is entitled to sovereign immunity under the Eleventh Amendment to the U.S. Constitution. KHESLC also argues that it is entitled to governmental immunity under Kentucky law. Plaintiff argues that KHESLC's motion is procedurally improper because sovereign immunity is an affirmative defense that cannot be addressed without discovery. If the motion is addressed, Plaintiff contends that the Kentucky legislature waived KHESLC's sovereign immunity by creating the entity as an "independent de jure municipal corporation and political subdivision" and by granting it the power "[t]o sue and be sued." See Ky. Rev. Stat. Ann. §§ 164A.030.060. Alternatively, Plaintiff argues that the relevant factors for determining whether an entity is an arm of the state weigh in favor of finding that KHESLC in fact is not an arm of Kentucky entitled to sovereign immunity. Plaintiff contends that Michigan law rather than Kentucky law governs this dispute and that Michigan's governmental immunity statute does not shield KHESLC from liability.

A claim of sovereign immunity challenges the court's subject matter jurisdiction and, as such, is properly raised under Federal Rule of Civil Procedure 12(b)(1). See, e.g., O'Bryan v. Holy See, 556 F.3d 361, 375 (6th Cir.2009). Rule 12 expressly provides that a motion under Rule 12(b)(1) "must be made before pleading if a responsive pleading is allowed." Fed. R. Civ. P. 12(b). As such, there is no merit to Plaintiff's contention that KHESLC's motion to dismiss is procedurally improper.

A Rule 12(b)(1) motion to dismiss an action for lack of subject matter jurisdiction may be premised on a facial attack or a factual attack. See United States v. Ritchie, 15 F.3d 592, 598 (6th Cir.1994). As the Sixth Circuit described these two categories of motions:

Id. (internal citations omitted) (emphasis in original). As matters outside the complaint may be considered in deciding a Rule 12(b)(1) motion raising a factual attack — which KHESLC's motion does — there may be merit to Plaintiff's argument that he needs discovery to properly respond to the motion.

The party opposing dismissal and requesting discovery has the burden of demonstrating the need for it. Davila v. United States, 713 F.3d 248, 264 (5th Cir. 2013) (citing Freeman v. United States, 556 F.3d 326, 341-42 (5th Cir.2009)). The party is "`not entitled to jurisdictional discovery if the record shows that the requested discovery is not likely to produce the facts needed to withstand a Rule 12(b)(1) motion.'" Id. (citing Freeman, 556 F.3d at 342). "Moreover, the burden is greater where ... `the party seeking discovery is attempting to disprove the applicability of an immunity-derived bar to suit because immunity is intended to shield the defendant from the burdens of defending the suit, including the burdens of discovery.'" Id.

In an amended declaration submitted in response to KHESLC's motion to dismiss, Plaintiff states that he needs to conduct discovery on "several critical issues" which include:

(ECF No. 39 ¶ 11.) Plaintiff further indicates that he seeks through discovery to "identify documents, insurance contracts, admissions, information about operational activities and the value of those activities...." (Id. ¶ 12.) Much of this information, however, is not relevant to the four-factor analysis used to determine whether KHESLC is entitled to sovereign immunity.2 See Gualandi v. Adams, 385 F.3d 236, 245 (2d Cir.2004) (holding that the district court did not err when ruling on the defendant's motion to dismiss for lack of subject matter jurisdiction without allowing the plaintiffs to engage in discovery, where the plaintiffs failed "to demonstrate that additional discovery was needed in order to decide the jurisdictional issue"); see also KNC Investments, LLC v. Lane's End Stallions, Inc., 579 Fed.Appx. 381, 385 (6th Cir.2014) (unpublished) (quoting In Chrysler Corp. v. Fedders Corp., 643 F.2d 1229, 1240 (6th Cir.1981) ("A ruling by the trial court limiting or denying discovery will not be cause for reversal unless an abuse of discretion is shown.")). To the extent the information is relevant, Plaintiff already possesses sufficient documentation, as evident from his response to the motion. Thus the Court finds it unnecessary to further delay adjudication of KHESLC's motion.

"[S]tate governments, and their arms, officers, and instrumentalities, are generally immune from private lawsuit in federal court by virtue of the Eleventh Amendment to the United States Constitution." Mumford v. Basinski, 105 F.3d 264, 267 (6th Cir.1997) (emphasis removed) (citing Mt. Healthy City Sch. Dist. v. Doyle, 429 U.S. 274, 280, 97 S.Ct. 568, 50 L.Ed.2d 471 (1977); Moor v. Alameda, 411 U.S. 693, 93 S.Ct. 1785, 36 L.Ed.2d 596 (1973)). There are three exceptions to a State's sovereign immunity under the Eleventh Amendment, only one of which is potentially applicable here: A State may waive the immunity. See S&M Brands, Inc. v. Cooper, 527 F.3d 500, 507 (6th Cir.2008) (citation omitted). Moreover, sovereign immunity "does not extend to counties and similar municipal corporations." Ernst v. Rising, 427 F.3d 351, 358 (6th Cir.2005) (citing Mt. Healthy, 429 U.S. at 280, 97 S.Ct. 568).

The Supreme Court has set forth several factors for courts to consider when deciding whether an entity is an "arm of the State" or a "political subdivision." Ernst, 427 F.3d at 359 (citing Hess v. Port Auth. Trans-Hudson Corp., 513 U.S. 30, 44-45, 51, 115 S.Ct. 394, 130 L.Ed.2d 245 (1994)). Those factors are:

Id. (emphasis added, internal citations omitted); see also Regents of the Univ. of Cal. v. Doe, 519 U.S. 425, 431, 117 S.Ct. 900, 137 L.Ed.2d 55 (1997) (explaining that the question is whether the state treasury is potentially liable, not whether the state treasury will pay for the judgment in the particular case). In Ernst, the Sixth Circuit interpreted Supreme Court precedent as suggesting that the first factor is "the foremost factor." Ernst, 427 F.3d at 359 (citing Hess, 513 U.S. at 51, 115 S.Ct. 394).3

As an initial matter, Plaintiff argues that the Kentucky General Assembly's creation of KHESLC as "an independent de jure municipal corporation and political subdivision of the Commonwealth of Kentucky ...", Ky. Rev. Stat. Ann. §§ 164A.020(3), .030 (West 2014), is determinative of whether KHESLC is a municipal corporation as opposed to an arm of the State. The language by which the state's statutes refer to an entity is only one part of one factor considered by the courts when making the arm-of-the-state determination, however. See Ernst, supra. Plaintiff also argues that Kentucky waived KHESLC's immunity by legislating that it may "[s]ue and be sued." Key. Rev. Stat. Ann. § 164A.060(11) (emphasis added). But as the Supreme Court explained in Sossamon v. Texas, 563 U.S. 277, 131 S.Ct. 1651, 179 L.Ed.2d 700 (2011), such language is not sufficiently clear to evince the Kentucky General Assembly's intent to waive KHESLC's immunity from suit in federal court:

Id., 563 U.S. at 284-85, 131 S.Ct. at 1658 (footnote omitted). Thus the Court will proceed to evaluate all four arm-of-the-state factors.4

As to the first factor — Kentucky's potential liability for a judgment against KHESLC — the enabling statute specifically exempts the State's liability for student loan and bond obligations, only. Ky. Rev. Stat. Ann. § 164A.070. The fact that the statute disavows Kentucky's liability for student loan and bond obligations and says nothing about liability for other obligations is significant. See United States ex rel. Oberg v. Penn. Higher Educ. Assistance Agency, 745 F.3d 131, 138, 141, 142-43 (4th Cir.2014) (distinguishing Pennsylvania's statute, which disavows liability for "all of the debts" of the State's education loan entity, with Vermont's and Arkansas' statutes, which disavow liability only with respect to their state entity's debt obligations, when analyzing whether the state is potentially liable for a judgment against the entity). Plaintiff fails to identify Kentucky law indicating that a judgment against KHESLC could not be enforced against the State. On the other hand, KHESLC's enabling statute authorizes it to request, accept, and expend funds appropriated by Kentucky's General Assembly. See Ky. Rev. Stat. Ann. § 164A.190. Moreover, it is unclear whether KHESLC's revenues could be used to satisfy a judgment in this case. The Kentucky General Assembly has provided that all monies received by KHESLC "shall be deemed to be trust funds to be held and applied solely as provided in [Chapter 164A]." Id. § 164A.110. The payment of a judgment against KHESLC is not included among the uses of the entity's revenues in Chapter 164A, or the investments available by incorporation in section 386.020. See Ky. Rev. Stat. Ann. §§ 164A.010-.250, 386.020.

The above discussion leads this Court to conclude that Kentucky is potentially liable for any judgment against KHESLC. Thus, the first arm-of-the-state factor weighs in favor of finding that KHESLC is an arm of Kentucky.

The second arm-of-the-state factor focuses on the language Kentucky's statutes and its state courts use to refer to KHESLC and the State's control and veto power over KHESLC's actions. As discussed earlier, Plaintiff focuses on the enabling statute's referral to KHESLC as an "independent de jure municipal corporation and political subdivision...." Ky. Rev. Stat. Ann §§ 164A.020(3).030. Under Kentucky law, however, "political subdivisions" are "cloaked" with sovereign immunity. Webb v. Jessamine Cnty. Fiscal Court, 802 F.Supp.2d 870, 887 (E.D.Ky.2011) (citing Jones v. Cross, 260 S.W.3d 343, 345 (Ky. 2008)) (citing Lexington-Fayette Urban Cnty. Gov't v. Smolcic, 142 S.W.3d 128 (Ky.2004); Commonwealth v. Whitworth, 74 S.W.3d 695, 699 (Ky.2002)). The Kentucky Supreme Court did hold in Kentucky Center for the Arts Corporation v. Berns, 801 S.W.2d 327 (1990), that "municipal corporations" do not qualify for sovereign immunity. Id. at 331-32. But the Court did not rely on the statutory designation to decide whether the entity before it was a state agency or a municipal corporation. Instead, the Court looked at different characteristics of the entity to reach its decision. See id. at 330-32. The Kentucky Supreme Court subsequently refined the factors relevant to the analysis in Comair, Inc. v. Lexington-Fayette Urban County Airport Corp., 295 S.W.3d 91 (Ky.2009).

In Comair, the Kentucky Supreme Court had to decide whether the Lexingon-Fayette Urban Airport Corporation ("airport corporation") and the Lexington-Fayette Urban County Airport Board ("airport board") were arms of the State, entitled to sovereign immunity. Id. at 92-93. The Comair Court identified two factors for deciding "what makes one corporate entity municipal and thus not immune, and another a state agency that is immune[.]" Id. at 97, 99. The first factor focuses on "the origins of the entity ... which can be as simple as looking at the `parent' of the entity in question, was it created by the state or a county, or a city?" Id. at 99. The second factor focuses on "whether the entity exercises a governmental function" which "means a `function integral to state government.'" Id. The Comair Court elaborated:

Id.

With respect to the first factor, the Court concluded that the airport board was a creature of the county. Id. at 100. While the origin of the board was not evident to the Court, it looked to who appoints the board's member, the fact that the county government retains significant control over the airport board, and that the board is required to submit a detailed annual report to the legislative body. Id. As to the second factor, the Comair Court concluded that the airport board "carries out a function integral to state government in that it exists solely to provide and maintain part of the Commonwealth's air transportation infrastructure (i.e., the airport)." Id. at 101. In reaching this conclusion, the Court expressly rejected the plaintiff's argument that the airport board was engaged in a proprietary function and thus should not be entitled to immunity. Id. at 101. As the Court explained:

Id. at 101-02.

In Comair, the Kentucky Supreme Court also concluded that the airport corporation is an arm of the State. Id. at 102-03. The Court reached this conclusion despite the fact that this defendant "is a true corporation that was created by filing Articles of Incorporation with the Secretary of State." Id. The Court relied on the fact that the airport corporation "has the same governmental function and parent as the [airport b]oard." Id. at 103.

Based on Comair, this Court finds that the Kentucky courts would conclude that KHESLC is an arm of the State, despite its statutory classification as "an independent de jure municipal corporation and political subdivision." First, it is important to note that the Kentucky General Assembly did not simply identify KHESLC as a "political subdivision", but expressly provided that it is "a political subdivision of the Commonwealth of Kentucky." Ky. Rev. Stat. Ann. §§ 164A.020(3), .030 (emphasis added). As to its origin, KHESLC was created by the State. Lastly, the Governor appoints its board members and it must submit annual reports to the Governor, the General Assembly, and the secretary of the Finance and Administration Cabinet. Id. §§ 164A.050, .170.

With respect to the second Comair factor, KHESLC's enabling statute expressly states that it was created to further "a public purpose of statewide import of the Commonwealth" — that being, "providing higher education assistance to needy, qualified students" which "is in the best interest of the Commonwealth[.]" Id. § 164A.010(1), (2). Plaintiff argues, like the plaintiff did in Comair, that KHESLC is not entitled to sovereign immunity because it is engaged in a proprietary function. For the reasons the Kentucky Supreme Court rejected the plaintiff's argument there, this Court does not find that KHESLC's function is proprietary.

KHESLC is not in the business of education; rather, it is in the "business" of making higher education available for Kentucky residents, which the State has declared to be a state concern and function. See supra. Like the airport board in Comair, KHESLC also uses the revenues it generates to operate and thus to further that state concern and function. To the extent KHESLC's revenues may be otherwise used, such use is limited by the state legislature. Ky. Rev. Stat. Ann. § 164A.110. Finally, like the airport board, Kentucky's legislature has granted KHESLC the power to issue bonds. Ky. Rev. Stat. Ann. § 164A.080.

For these reasons, the Court finds that the language by which Kentucky's statutes refer to KHESLC and how the Kentucky courts analyze such language weigh in favor of concluding that KHESLC is an arm of Kentucky. However, the second arm-of-the-state factor also requires the Court to consider the degree to which Kentucky controls and retains veto power over KHESLC. The Court already has identified some facts suggesting that the State controls KHESLC, but will elaborate on the matter now.

As suggested earlier, the Governor of Kentucky retains significant control over KHESLC. KHESLC is governed by a fifteen-member board of directors, appointed by the governor. Ky. Rev. Stat. Ann. § 164A.050(3)(a), (4). "Such an arrangement frequently indicates state control." United States ex. rel. Oberg v. Penn. Higher Educ. Assistance Agency, 745 F.3d 131, 139, 144 (4th Cir.2014) (citing cases). The board consists of "[e]ight (8) voting members chosen from the general public residing in the Commonwealth of Kentucky" and "[s]even (7) voting members of the board of directors of the Kentucky Higher Education Assistance Authority appointed by the Governor...." Id. § 164A.050(3)(a)(1), (2). Several commonwealth officials, including the President of the Council on Postsecondary Education, the Secretary of the Finance and Administration Cabinet, the President of the Association of Independent Kentucky Colleges and Universities, and the State Treasurer, "serve as ex officio voting members. Id. § 164A.050(3)(c)". Kentucky's governor maintains the power to remove any of the eight directors chosen from the general public for cause. Id. § 164A.050(6). The governor also has the authority to appoint a replacement director in the event of a vacancy.5 Id. § 164A.050(5).

KHESLC must obtain approval from the Kentucky General Assembly prior to issuing bonds under certain circumstances. Id. § 164A.080. As an agency authorized to issue bonds, it is accountable to the State for "all money received and disbursed during each fiscal year." See Ky. Rev. Stat. Ann. §§ 42.545, 45A.840(3), 164A.080. Thus, KHESLC must submit an annual report and audit of its expenditures and investments to the State Governor, General Assembly, and the Secretary of the Finance and Administration Cabinet. Id. §§ 164A.170, 42.545, 45A.840(3). Finally, upon KHESLC's termination or dissolution, all of its rights and properties vest in the State. Id. § 164A.230. While there is an exception to this provision if the board has directed the distribution of certain property elsewhere, the legislature has placed limitations on where the property may be distributed. Id.

As Plaintiff points out, KHESLC is granted numerous powers in its enabling statute including the power to: make, purchase, sell, and modify loans; collect and service loans; procure insurance; borrow money; make and publish rules and regulations; and enter into contracts. Id. § 164A.055(5). However, these actions are necessary for KHESLC to carry out its function as defined in the enabling statute and the legislature has expressly constrained KHESLC's powers in that regard. Id. For example, the enabling statute grants the board of directors the authority to "[p]romulgate administrative regulations and adopt procedures to implement this section[,]" to "[m]ake and enter into contracts necessary for the administration of the corporation[,]" and to "[m]ake, execute, and effectuate any and all agreements or other documents ... and perform other acts necessary or appropriate for the effectuation of its rights and duties pursuant to this section[.]" Id. § 164A.055(5)(b), (c), (e) (emphasis added). As a result of these restrictions on KHESLC's powers, the Court does not agree with Plaintiff that KHESLC "appears to have more power and control than many private commercial corporations." (ECF No. 36 at Pg ID 387.)

For the above reasons, the Court concludes that the second arm-of-the-state factor also weighs in favor of finding that KHESLC is an arm of Kentucky. The third factor considers "whether state or local officials appoint the board members of the entity." Ernst, supra. As the above analysis indicates, the Governor of Kentucky has that authority with respect to KHESLC. Thus this factor also weighs in favor of finding that KHESLC is an arm of the State.

As suggested by the Court's earlier discussion, the final factor — whether KHESLC's functions fall within the traditional purview of state or local government — also weighs in favor of finding that it is an arm of Kentucky. The Kentucky General Assembly expressly created KHESLC to effectuate "a public purpose of statewide import of the Commonwealth." Ky. Rev. Stat. Ann. § 164A.010(1) (emphasis added). The legislature stated that "the corporation will be performing vital public purposes in improving and promoting the public welfare and prosperity of the people of the Commonwealth of Kentucky by promoting the availability of higher educational opportunities." Id. § 164A.030 (emphasis added). Plaintiff argues that KHESLC's functions fall outside of traditional government functions because its activities generate a substantial profit.

KHESLC's profits, however, are generated "by a program of financing, making, and purchasing of insured student loans" — i.e., the activities it was granted the power to perform in order to "promot[e] the educational opportunities of the citizens and inhabitants of the Commonwealth of Kentucky and other qualified students." Ky. Rev. Stat. Ann. § 164A.050(2). As the Fourth Circuit reasoned when rejecting the same argument asserted by the plaintiff in Oberg with respect to the Pennsylvania Higher Education Assistance Agency ("PHEAA"), an entity similar to KHESLC:

United States ex rel. Oberg, 745 F.3d at 140 (brackets omitted). Like the plaintiff in Oberg, Plaintiff also argues that KHESLC's operations are so focused out of state that the agency's functions cannot be said to be focused on state concerns.

Relying on documents published by KHESLC, Plaintiff estimates that KHESLC derives more than half of its revenues from its servicing and collection activities for non-Kentucky citizens' loans. (ECF No. 36 at Pg ID 372-73.) The evidence Plaintiff offers, however, also shows that KHESLC maintained a substantial $1.3 billion portfolio of student loans to Kentucky residents in 2013. (Id. at Pg ID 372.) Thus KHESLC still appears focused on the statewide concern of facilitating higher educational opportunities for Commonwealth residents ... even if that is not the entity's only focus. Moreover, it is not evident that a comparison of KHESLC's revenues from providing loans to Kentucky citizens with its revenues from servicing and collection activities for out-of-state loans accurately reflects the degree to which it is focused on each of those activities, as one activity may be more profitable than another. Further, any substantial increase in the revenue KHESLC derives from servicing and collection activities with respect to loans held by non-Kentucky citizens in turn provides it with a greater opportunity to carry out the State's concern of helping to make higher education affordable and available to Kentucky residents.6

Thus even assuming that Plaintiff is correct and could obtain further support to show that KHESLC earns more revenue from servicing loans to non-Kentucky citizens than from its lending activities to Kentucky citizens, this does not undermine KHESLC's primary function of helping finance higher education for Kentucky residents. As such, this last factor also weighs in favor of concluding that KHESLC is an arm of Kentucky.

Having found that each of the four factors set forth in Ernst counsels in favor of holding that KHESLC is an arm of the state, the Court concludes that it is entitled to sovereign immunity. The Court therefore finds it unnecessary to decide whether KHESLC is entitled to governmental immunity under Kentucky or Michigan law. Because Plaintiff is precluded from suing KHESLC in federal court and his claim against KHESLC must be dismissed, KHESLC's motion to stay discovery is denied as moot.

Accordingly,

IT IS ORDERED, that KHESLC's motion to dismiss is GRANTED and KHESLC is DISMISSED AS A PARTY to this lawsuit;

IT IS FURTHER ORDERED, that KHESLC's motion for stay of discovery is DENIED AS MOOT.