News & Blog

By Beth Richardson

In a 37-page unanimous opinion, the Fourth Circuit recently answered important questions regarding sovereign immunity in the case of Hutto et al. v. South Carolina Retirement System et al., 773 F.3d 536 (2014).

In Hutto, retirees of the state retirement system who returned to work for employers participating in the retirement system brought a class action against South Carolina’s retirement system entities and state officers in their official capacities alleging that an amendment to state law requiring all employees, including those who retired and returned to work, to contribute a portion of their salary to the retirement system constituted a taking of private property in violation of the Fifth Amendment of the United States Constitution.  On behalf of the defendants, Sowell Gray attorney Tina Cundari argued that the Eleventh Amendment barred the plaintiffs from suing the defendants in federal court.

As an initial matter, the Fourth Circuit first determined that a defendant has the burden of proof in demonstrating that it is immune from suit, and that sovereign immunity is akin to an affirmative defense.  The court then undertook a detailed analysis of whether the defendant entities were arms of the state such that a suit against them was the equivalent of a suit against the state.  Applying a four-factor test, the court considered most important whether the state was ultimately responsible for paying any judgment against the retirement system entities.  Recognizing intervening United States Supreme Court precedent and expressly rejecting the Fourth Circuit’s prior test of “inevitable liability,” the court found proof of potential liability sufficient to satisfy this factor.  Because a judgment rendering the retirement system insolvent would harm the state’s credit rating and increase the state’s expense to borrow money, the court found that the State of South Carolina was “functionally liable” and potentially liable for any judgment against the retirement system entities.

The Fourth Circuit also concluded that the Ex parte Young exception to Eleventh Amendment immunity did not apply because the state officials named as defendants did not have the authority to enforce the law being challenged.  For the exception to apply, there must be a relationship between the state officials sought to be enjoined and the enforcement of the state statute.  Here, the court found that no such relationship existed.  The officials were not responsible for deducting funds from participating employees’ paychecks or for prosecuting employers who violate their duties.

Finally, the court ruled for the first time that the takings clause in the Fifth Amendment does not override the Eleventh Amendment.  The court left open for another day the question of whether the Fifth Amendment overrides the Eleventh Amendment when a state court refuses to hear a takings claim, leaving no other forum but the federal court.