Indiana's Lottery Commission Not Immune from Employment Discrimination Suit: Seventh Circuit

Holding:

The State Lottery Commission of Indiana, doing business as Hoosier Lottery ("Lottery"), does not enjoy sovereign immunity from employment discrimination suits, so ruled the U.S. Court of Appeals for the Seventh Circuit. Applying court precedent, the Seventh Circuit reasoned that the Lottery is not an arm of the state. In particular, Lottery’s complete lack of fiscal reliance upon the state was evident since its funds are kept in an administrative trust fund separate and apart from the state’s general fund. In addition, Lottery generally controls its own operations, given that the statute creating it expressly states that the Lottery is a body politic and corporate separate from the state. On this basis, the Seventh Circuit affirmed the district court's denial of Lottery's motion to dismiss.

Detailed Summary:

Plaintiffs, seven former employees of the Lottery, sued their former employer under 42 U.S.C. § 1981 and Title VII of the Civil Rights Act of 1964. They claimed that they were fired because of their race. The Lottery moved to dismiss the plaintiffs’ § 1981 claims on the basis that it was a state agency and therefore entitled to sovereign immunity pursuant to the Eleventh Amendment. The U.S. District Court for the Southern District of Indian denied the Lottery’s motion. The Seventh Circuit affirmed.

The issue in this appeal was whether the Lottery is entitled to assert state sovereign immunity under the Eleventh Amendment to defeat the plaintiffs’ § 1981 claims. The Seventh Circuit answered this issue in the negative.

By way of background, the Indiana General Assembly created the Lottery in 1989 to operate lottery games “as a separate body politic and corporate from state government.” Opinion, p. 2, citing Ind. Code § 4-30-1- 2(1). It intended the Lottery to function “as much as possible as an entrepreneurial business enterprise,” and mandated “[t]hat the lottery games be operated as a self-supporting revenue raising operation.” Id., citing § 4-30-1-2(1), (3).

The Lottery claimed that it is a state agency; the plaintiffs asserted that it is not. To determine if a particular entity is an arm of the state, the Seventh Circuit looked primarily at two factors: (1) the extent of the entity’s financial autonomy from the state; and (2) the “general legal status” of the entity. Id., p. 6, citing Kashani v. Purdue Univ., 813 F.2d 843, 845-47 (7th Cir. 1987).

Applying the foregoing principles, the Seventh Circuit found that the first factor weighed against the finding that the Lottery is an arm of the state of Indiana. Specifically, the Seventh Circuit found that Lottery’s complete lack of fiscal reliance upon the state is plain. The Lottery’s funds are kept in an administrative trust fund separate and apart from the state’s general fund. True to the state legislature’s intent that the Lottery “be operated as a self-supporting revenue raising operation,” Ind. Code § 4-30-1- 2(3), the Lottery funds all of its own operations with the revenue generated from the games it operates. Id., p. 7.

Most importantly, the Lottery pays any legal obligation from its own administrative trust fund. The Indiana Attorney General has expressly disclaimed liability for any of the Lottery’s monetary obligations. Id., pp. 7-8, citing 1991 Ind. OAG No. 10. Under that official opinion, the state treasury is not exposed should there be a monetary judgment against the Lottery in this case. Id., pp. 8-9.

The second factor— the general legal status of the entity— weighed against the Lottery, and supported a conclusion that the Lottery is not an arm of the state. In particular, the Seventh Circuit found that the Lottery generally controls its own operations. Like a private enterprise, the Lottery maintains control over its own operating budget and has the power to enter into contracts; own and enforce trademarks and service marks; sell, own, and lease property; and sue and be sued in its own name. Furthermore, the statute creating the Lottery states that the Lottery is “a body politic and corporate separate from the state.” Id., pp. 10-11, citing Ind. Code § 4-30-3-1.

The Seventh Circuit concluded that the Lottery is not entitled to sovereign immunity because it is not an arm of the state.  The Seventh Circuit thus affirmed the decision of the district court denying the Lottery’s immunity from the plaintiffs’ 42 U.S.C. section 1981 claims.

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