CAFC tackles Eleventh Amendment immunity in GENSETIX, INC. v. BAYLOR COLLEGE OF MEDICINE

The outcome:



The District
Court for the Southern District of Texas determined that
the Eleventh Amendment barred joinder of UT as an involuntary plaintiff. Gensetix, Inc. v. Baylor Coll. of Med., 354
F. Supp. 3d 759, 766 (S.D. Tex. 2018). The court also concluded that, under Rule 19(b), the suit could not proceed in
UT’s absence. Id. at 773–74. Accordingly, the court dismissed the suit. This appeal followed. For the reasons
stated below, we affirm-in-part, reverse-in-part, and remand.


Some relevant text:



Gensetix’s attempt to limit the Eleventh Amendment
to its text—i.e., to cases “against” a state—is contrary to
Supreme Court guidance. “[T]he sovereign immunity reflected in (rather
than created by) the Eleventh Amendment transcends the narrow text of the Amendment itself.”
Coll. Sav. Bank v. Fla. Prepaid Postsecondary Ed. Expense
Bd., 527 U.S. 666, 687 n.5 (1999). The Supreme Court has
“understood the Eleventh Amendment to stand not so
much for what it says, but for the presupposition . . . which
it confirms.” Seminole Tribe of Fla. v. Fla., 517 U.S. 44, 54
(1996) (quoting Blatchford v. Native Vill. of Noatak, 501
U.S. 775, 779 (1991)). Importantly, the Court has made
clear that “[t]he Eleventh Amendment does not exist solely
in order to prevent federal-court judgments that must be
paid out of a State’s treasury; it also serves to avoid the
indignity of subjecting a State to the coercive process of judicial
tribunals at the instance of private parties.” Seminole Tribe, 517 U.S. at 58 (citations and internal quotation
marks omitted).

Gensetix provides no basis for suggesting that these
principles are inapplicable in cases where the state is
joined as an involuntary plaintiff. Indeed, Gensetix’s reliance on our decision in Regents of UC is misplaced. Regents
of UC involved a suit initiated by the University of California in the Northern District of California. 119 F.3d
at 1559.

(...)

Gensetix erroneously reads Regents of UC to broadly
hold that Eleventh Amendment immunity is inapplicable
in all cases where the state is a plaintiff (even if involuntarily) and there are no counterclaims against the state.
But Regents of UC did not create a rule whereby parties
may drag a sovereign into the federal court system against
its will simply because there is no claim “against” the sovereign.

(...)

In sum, neither Supreme Court case law, nor the decisions of this circuit or our sister circuits, support Gensetix’s
arguments that, absent waiver, a sovereign may be joined
as an involuntary plaintiff under Rule 19(a). Accordingly,
we affirm the district court’s conclusion that UT may not
be joined as an involuntary plaintiff.




BUT



We next consider whether the district court properly
concluded that this case cannot proceed in UT’s absence. A
district court’s analysis under Rule 19(b) is a matter of regional circuit law. Univ. of Utah v. Max-Planck-Gesellschaft zur Forderung der Wissenschaften E.V., 734 F.3d
1315, 1320 (Fed. Cir. 2013). The Fifth Circuit reviews a
district court’s decision to dismiss a suit pursuant to the
Rule 19(b) inquiry for abuse of discretion. Hood v. City of
Memphis, 570 F.3d 625, 628 (5th Cir. 2009). “Determining
whether [a suit should be dismissed in the absence of a required party] is a highly-practical, fact-based endeavor,
and . . . a district court will ordinarily be in a better position
to make a Rule 19 decision than a circuit court would be.”
Id. (internal citations omitted).7 “A district court abuses
its discretion if it: (1) relies on clearly erroneous factual
findings; (2) relies on erroneous conclusions of law; or
(3) misapplies the law to the facts.” In re Volkswagen of
Am., Inc., 545 F.3d 304, 310 (5th Cir. 2008) (en banc)).

(...)

The proper analysis of the Rule 19(b) factors is far more
nuanced than the district court’s. As to the prejudice to
UT, the interests of UT and Gensetix are aligned. Despite
UT’s sovereign status, given Gensetix’s identical interest
in the validity of the patents-in-suit, any prejudice to UT is
greatly reduced. There is also no risk of multiple suits because, under the express terms of the parties’ agreement,
UT may not sue Baylor once Gensetix has commenced litigation. And, as an exclusive licensee with less than all substantial rights in the patents-in-suit, Gensetix cannot
enforce its patent rights without the court allowing the suit
to proceed in UT’s absence. Given this clear factual record,
we conclude that it was an abuse of discretion to find that
the suit may not proceed in UT’s absence. Accordingly, we
reverse the district court on this point.



Judge Newman disagreed, in part:


The panel majority holds that the Board of Regents of
the University of Texas System (“the University” or “UT”)
has Eleventh Amendment immunity that shields it from
involuntary joinder in this infringement suit against Baylor College of Medicine and others. Respectfully, I disagree.

(...)

Just as the State must pay its bills, it also must comply
with its contracts. The purpose of the Eleventh Amendment is to shield a State’s sovereign functions of governance from judicial oversight in federal courts. See William
A. Fletcher, The Eleventh Amendment: Unfinished Business, 75 Notre Dame L. Rev. 843, 854 (2000). When a State
agency enters into commercial transactions, it is subject to
the rules of commerce.