The United States Court of Appeals for the Fifth Circuit has ruled that one factor weighs above all others when evaluating whether an agency is an “arm of the state” and entitled to sovereign immunity under the Eleventh Amendment:  if a judgment is entered against an entity, where does the money come from?  According to the Fifth Circuit’s decision in Daniel v. University of Texas Southwestern Medical Center, 960 F.3d 253 (5th Cir. 2020), if a judgment against an agency in a civil lawsuit would be paid from state treasury funds (rather than private funds), then the agency is most likely an “arm of the state” and entitled to sovereign immunity.

On June 2, 2020, the Fifth Circuit upheld the lower court’s dismissal of a nurse’s disability discrimination claim under the Americans with Disabilities Act against her former employer, a public medical center within the University of Texas system.   The Fifth Circuit applied a six-factor test in evaluating whether the medical center qualifies as an arm of the state: (1) whether the state statutes and case law view the agency as an arm of the state; (2) the source of the entity’s funding; (3) the entity’s degree of local autonomy; (4) whether the entity is concerned primarily  with local as opposed to statewide problems; (5) whether the entity has the authority to sue and be sued in its own name; and (6) whether the entity has the right to hold and use property.  The Fifth Circuit emphasized that the goal of this test “is to protect state funding,” and therefore the most important factor is the source of the entity’s funding (i.e., whether a judgment against the medical center would be paid with state funds). 

In employing these factors, the Fifth Circuit found that the medical center was entitled to sovereign immunity as an arm of the state, primarily because the medical center was part of the publicly-funded University of Texas system and a judgment against the medical center would interfere with Texas’s fiscal autonomy. 

Notably, the Fifth Circuit stated that it was the plaintiff’s burden to demonstrate that the medical center would be responsible for paying its judgments and debts from its own private funds, rather than state funds.  However, the more common approach is to place the burden on the party  invoking sovereign immunity to establish that it is an arm of the state. See Haven v. Bd. of Trustees of Three Rivers Reg’l Library Sys., 625 F. App’x 929, 933 (11th Cir. 2015) (placing the burden on the party invoking sovereign immunity); Hutto v. S.C. Ret. Sys., 773 F.3d 536, 543 (4th Cir.2014) (noting that every circuit to address the issue has concluded that the defendant bears the burden of demonstrating that it is entitled to Eleventh Amendment immunity). Therefore, defendants should assume that it will have the burden of establishing it is entitled to sovereign immunity.