Artful Pleading Won’t Circumvent Sovereign Immunity, Fourth Circuit Says

In Cunningham v. Lester, —F.3d—, 2021 WL 821467 (4th Cir. Mar. 4, 2021), the Fourth Circuit reiterated that the doctrine of sovereign immunity is alive and well and very much applicable to putative TCPA claims, and that crafty plaintiffs cannot artfully plead around the doctrine’s reach.

The Affordable Care Act (ACA) contains a provision requiring the U.S. Department of Health and Human Services, Centers for Medicare & Medicaid Services (CMS) to “establish a system” so applicants “receive notice of eligibility for an applicable State health subsidy program.” 42 U.S.C. §§ 18083(a), (b)(2), (e). CMS contracted with private company GDIT to fulfill CMS’s requirement that it contact individuals to inform them of their eligibility for participation in the subsidized health insurance plans offered through ACA’s health insurance exchanges. Defendants were individuals working for CMS in connection with the CMS-GDIT contract. Defendants instructed GDIT to prerecord a message and deliver it to approximately 680,000 individuals who had not consented to receive the message.

Plaintiff initially filed a putative class action against GDIT, alleging that it had violated the TCPA via its use of the automated call. In 2018, the Fourth Circuit affirmed the district court’s dismissal of that case for lack of subject matter jurisdiction, citing the Supreme Court’s mandate that “government contractors are immunized ‘from suit when the government authorized the contractor’s actions and the government validly conferred that authorization.’” 2021 WL 821467, at *2 (citing Yearsley v. W.A. Ross Construction Co., 309 U.S. 18, 60 (1940)).

Plaintiff then proceeded to file a new complaint, this time substituting GDIT for the current defendants, in their individual capacities. The underlying injuries alleged were substantially the same as those alleged in the first complaint. The district court determined that, despite the form of the new complaint, the federal government remained the real party in interest such that the complaint should be dismissed for lack of subject matter jurisdiction.

The Fourth Circuit again agreed. It noted that the Supreme Court already determined that the TCPA does not contain a waiver of sovereign immunity, meaning the only question was whether the government was the real party in interest in plaintiff’s new complaint, despite the change in caption. Id. at *2-3. The Court opined that real-party-in-interest jurisprudence requires a “general refusal to privilege the form of a complaint over its substance,” and that the operative inquiry is whether, despite nominally seeking relief against state officials, relief is actually sought against the State itself. Id. at *3. The Court noted its precedent, Martin v. Wood, 772 F.3d 192 (4th Cir. 2014), in which it outlined a five-factor test to determine whether named defendants committed complained-of conduct in the course of performing their official duties or in the pursuit of private interests. The test asks the following questions: “(1) were the alleged unlawful actions of the state officials tied inextricably to their official duties; (2) if the state officials had authorized the desired relief at the outset, would the burden have been borne by the State; (3) would a judgment against the state officials be institutional in character, such that it would operate against the State; (4) were the actions of the state officials taken to further personal interests distinct from the State’s interests; and (5) were the state officials’ actions ultra vires.” Id. at *3 (quoting Martin, 772 F.3d at 196).

Here, the Court reasoned that, under the Martin test, the “practical question of whether the defendants or the government is the real party in interest . . . is not a difficult one.” Id. at *4. Defendants in this case were “plainly acting in furtherance” of the federal mandate that CMS “establish a system” for ensuring that applicants “receive notice of eligibility for an applicable State health subsidy program” when “they signed the contract with GDIT and instructed GDIT to place its automated calls.” Id. Moreover, the effects that a judgment in favor of plaintiff would have on the State would put the State in an impossible position in which it would be unable to carry out the duties of its statutory mandate without subjecting its employees to significant repercussions that ultimately would reduce sovereign immunity “to a nullity.” Id. at *5. As such, the Fourth Circuit affirmed the district court, concluding that the doctrine of sovereign immunity mandated the complaint be dismissed for lack of subject matter jurisdiction.


William A. Wright

About the Author: William A. Wright

William Wright represents clients in connection with complex business disputes, consumer class actions and emerging e-discovery and information governance issues. His experience includes a broad range of representative matters, including contract disputes, statutory class actions and corporate governance investigations. Bill defends large institutional clients in commercial litigation and routinely manages subject matter experts and consultants. He has appeared in numerous state and federal courts, and before private arbitration panels.

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