AMENDED MEMORANDUM OPINION

DONALD J. PORTER, District Judge.

On June 20, 1991, plaintiff sued Employers Insurance of Wausau, in the Sixth Judicial Circuit Court of South Dakota. Plaintiff seeks judicial determination of the extent of the liability coverage provided by defendant and recovery for breach of defendant's alleged contractual duty to defend plaintiff in an action brought against the Cement Plant in Wyoming.

Under 28 U.S.C. § 1441, defendant removed the case to this Court, alleging that this Court has jurisdiction under 28 U.S.C. § 1332 on the ground that diversity of citizenship exists between plaintiff and defendant and that the amount in controversy exceeds $50,000.00.

Plaintiff has moved to remand the case to the State court, contending the Cement Plant is not a citizen of the State of South Dakota for diversity purposes and this Court thus lacks jurisdiction under 28 U.S.C. § 1332.

DISCUSSION

The issue before this Court is one of subject matter jurisdiction. A U.S. district court may accept a case upon removal from a State court only if the case is one that originally could have been brought in federal court. Caterpillar, Inc. v. Williams, 482 U.S. 386, 392, 107 S.Ct. 2425, 2429, 96 L.Ed.2d 318 (1987) (citing 28 U.S.C. § 1441(a)). The governing removal statute reads in part:

Except as otherwise expressly provided by Act of congress, any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending.

(a) . . . all civil actions where the matter in controversy exceeds the sum or value of $50,000, exclusive of interest and costs, and is between —

(1) citizens of different States; . . .

28 U.S.C. § 1332(a)(1).

Neither side disputes the amount in controversy requirement. The diversity of citizenship requirement is, however, at the heart of the parties' disagreement. Plaintiff contends that, as an arm of the executive branch of the South Dakota State government, it brought suit against defendant in the name of the State of South Dakota. Defendant maintains that the Cement Plant is in fact a commercial entity independent of the State of South Dakota and thus a "citizen" for diversity purposes.

A State is not a "citizen" for the purposes of diversity jurisdiction. Moor v. County of Alameda, 411 U.S. 693, 717, 93 S.Ct. 1785, 1799, 36 L.Ed.2d 596 (1973). And if an agency, commission, or political subdivision that is party to a suit is an arm of the State, that entity similarly does not qualify as a "citizen" who can sue and be sued in federal court under 28 U.S.C. § 1332. Id. at 693, 93 S.Ct. at 1785. Thus, if the Cement Plant is an alter ego of the State of South Dakota, this Court lacks diversity jurisdiction.

This Court considered a somewhat similar question in Board of Regents v. Hoops, 624 F. Supp. 1179 (D.S.D. 1986). In Hoops, the status of the State Board of Regents, which governs the state-supported educational institutions, was examined upon removal of the case from state court. The several factors considered in determining whether this agency was a "citizen" included the agency's right to hold and use property; its authority to sue and be sued in its corporate name; the extent of its independent management authority; the treatment of the agency by the State's courts; whether the State was responsible for the agency's debt; the agency's concern with statewide, as opposed to local problems; and the degree of financial autonomy of the agency. Id. at 1181 (citing Tradigrain Inc. v. Mississippi State Port Auth., 701 F.2d 1131, 1132 (5th Cir. 1983)). No one factor standing alone is conclusive as to the citizenship status of a state agency or commission. Rather, the relative weight of each of these listed factors is considered by examining the state constitution, applicable statutes, and pertinent case law. See Tradigrain, 701 F.2d at 1132. See also Peter Kiewit Sons Co. v. South Dakota State Highway Comm'n, 269 F. Supp. 333, 337 (D.S.D. 1967) (in deciding that South Dakota Highway Commission is "arm of the state," district court stated "[a]lthough the federal court makes an independent determination of the character and status of a state agency, it is influenced by state decisions").

The Cement Plant's management powers granted by the statute suggest that it enjoys a certain degree of autonomy. The South Dakota Cement Plant Commission controls the management of the Plant, SDCL 5-17-2.3, and its members are compensated from the cement plant fund. SDCL 5-17-4. The Commission also has the power to hire employees and other professionals, including attorneys. SDCL 5-17-5. The Cement Plant Commission can acquire property, SDCL 5-17-8, can sell or lease real and personal property, SDCL 5-17-18, and can borrow money and issue bonds, SDCL 5-17-19. The legislature has also given the Commission the specific authorization to operate the Rapid City Plant, including the power to sell the cement products, to establish the prices, to repair, maintain, and improve the facilities, and to purchase equipment. SDCL 5-7-10. Indeed, the statutory provisions appear to grant the Commission, comprised of persons expert in a variety of skills, a significant degree of autonomy to make management decisions regarding the efficient operation of the State Cement Plant. To a great extent, the State Cement Plant enjoys significant "independent management authority."

The applicable statutory provisions, while granting the Commission freedom to manage and operate the Plant, also provide substantial links to the State government. For example, the Cement Plant's proprietary powers are qualified by significant State involvement. Specifically, the Plant has the power of eminent domain. SDCL 5-17-8. When the Commission deems it necessary, the Attorney General institutes the condemnation proceedings in the name of the State. Id. The Cement Plant Commission has the general authority to purchase real property; but when it sells, leases, or exchanges surplus real property, those transactions must be made in the name of the State of South Dakota and approved by the Governor. SDCL 5-17-8; SDCL 5-17-17. And if the Commission acquires property outside the State, title is to be held in the name of the State of South Dakota. SDCL 5-17-8.

In determining the Cement Plant's status in relation to the State, the extent of the Plant's financial autonomy is an influential factor. See Tradigrain Inc. v. Mississippi State Port Auth., 701 F.2d 1131 (5th Cir. 1983); Board of Regents v. Hoops, 624 F. Supp. 1179 (D.S.D. 1986). The Plant can borrow money and issue bonds. These bonds, however, "shall be executed in the name and on behalf of the state," must be imprinted with the words "Internal Improvement Bonds of South Dakota," and will have affixed to them the State seal. SDCL 5-17-19. Furthermore, the state constitution authorizes the State to pledge the Cement Plant its credit to provide for the operation of the Plant and the manufacture of cement products. S.D. Const. art. XIII, § 11. The State not only pledges its "good faith and credit" to the redemption of the bonds, but also authorizes a tax to be levied to pay the bonded indebtedness. SDCL 5-17-23. The Commission is further authorized to issue "negotiable coupon general obligation bonds of the state" for the specific purpose of enlarging the Rapid City plant. SDCL 5-17-23. These bonds are, in the first instance, to be secured by the revenues of the Cement Plant. SDCL 5-17-24. But the State again pledges its full faith and credit to make up the difference whenever those revenues are insufficient to meet the immediate payments of principal and interest. Id. Financially, the Cement Plant enjoys significant State support.

Examination of the general characteristics of the Cement Plant also suggests that the Plant is ultimately closely linked to the State of South Dakota in its governmental capacity. Both the South Dakota Constitution and corresponding statutory provisions declare that the operation of the Cement Plant is considered a governmental function as well as a public necessity. The South Dakota Constitution states that "[t]he manufacture, distribution and sale of cement and cement products are hereby declared to be works of public necessity and importance in which the state may engage. . . ." S.D. Const. art. XIII, § 10. Furthermore, this section grants the legislature the authority to empower the state "to acquire, by purchase or appropriation, all lands, easements, rights of way, tracks, structures, equipment, cars, motive power, implements, facilities, instrumentalities and material, incident or necessary to carry the provisions of this section into effect. . . ." Id. In accordance with this grant of authority, the legislature also determined that "the manufacture, distribution, and sale of cement and cement products are public purposes impressed with a public use and as such governmental functions subject to regulation by the state." SDCL 5-17-1.

These constitutional and statutory declarations indicate that South Dakota and its people consider the production of cement to be a governmental function that alleviates a "state wide," and not simply a "local," problem. See Tradigrain Inc. v. Mississippi State Port Auth., 701 F.2d 1131 (5th Cir. 1983); Board of Regents v. Hoops, 624 F. Supp. 1179 (D.S.D. 1986). See also Reeves, Inc. v. Stake, 447 U.S. 429, 430, 100 S.Ct. 2271, 2274, 65 L.Ed.2d 244 (1980) (project to build state cement plant was "initiated in response to recent regional cement shortages that `interfered with and delayed both public and private enterprises,' and that were `threatening the people of this state'") (quoting Eakin v. South Dakota State Cement Comm'n, 44 S.D. 268, 183 N.W. 651, 652 (1921)).

The history of the South Dakota Cement Plant's creation also suggests an association between the Cement Plant and the State of South Dakota in its governmental capacity. The Plant was established during the Progressive era, when the public was in favor of state ownership of business to avoid the high prices of, and the concentration of wealth in, monopolies. Reeves, 447 U.S. at 430 n. 1, 100 S.Ct. 2274 n. 1. Private industry, at least in the area of cement production, was seen as largely incapable of serving the "public needs." Id. Not only had the sole cement plant in the State recently closed, there was also a "fervent desire to make the services of the state government available to agriculture." Id. Furthermore, the South Dakota Supreme Court, shortly after the establishment of the Plant, found specifically:

[T]he manufacture of cement, under the conditions existing in the state of South Dakota, is the carrying out of a public purpose . . . [and] the manufacture, distribution, and sale of cement and cement products by the state will tend to promote the public welfare, prosperity, and contentment of all the citizens of the state, and will tend to secure equality of economic opportunity.

The statutory provisions governing the Cement Plant do not explicitly address the Plant's "power to sue and be sued," another helpful factor in determining the status of a state agency or commission for federal jurisdiction purposes. See Tradigrain Inc. v. Mississippi State Port Auth., 701 F.2d 1131 (5th Cir. 1983); Board of Regents v. Hoops, 624 F. Supp. 1179 (D.S.D. 1986). The South Dakota Supreme Court has, however, decided the Plant's amenability to suit in the limited contexts of breach of contract under the Uniform Commercial Code, Arcon Constr. Co. v. South Dakota Cement Plant, 349 N.W.2d 407 (S.D. 1984), and commercial torts, L.R. Foy Constr. Co., Inc. v. South Dakota State Cement Plant Commission, 399 N.W.2d 340 (S.D. 1987). These cases held that, under the circumstances presented, the Cement Plant could be sued. These cases do not, however, support the general finding that the Cement Plant is an independent entity distinct from the State of South Dakota. The majority in Arcon began its analysis with a description of the Cement Plant as "clearly an arm of the state," Arcon, 349 N.W.2d at 410, and then proceeded to determine whether the immunity that accompanied the sovereign status of the State had effectively been waived. The conclusion was that "when the legislature enacted the U.C.C. it expressly waived sovereign immunity for the cement plant whenever the cement plant enters into contracts for the sale of goods." Id. Thus, the Cement Plant would apparently have been entitled to sovereign immunity had the legislature not expressly waived it for those instances in which it enters contracts that are governed by the U.C.C.

Defendant Wausau focuses on language in L.R. Foy, the other South Dakota Supreme Court case that addresses the Plant's amenability to suit, to support its position in favor of removal. In L.R. Foy, a majority of the court stated:

The Cement Plant was created solely for the purpose of engaging in a commercial function and is wholly unrelated to any governmental function of the State. Where the State elects to operate a business enterprise solely for commercial purposes, it ought not be permitted to avoid its legal responsibility by invoking the doctrine of governmental immunity. The Cement Plant should be amenable to suit for mismanagement, bad faith actions and negligent conduct, just as the private sector is made responsible.

Although inconsistent on its face, the language in L.R. Foy need not be interpreted as contradictory to any of these authorities. When read in light of the L.R. Foy dissent, the description of the Plant given by the L.R. Foy majority may be read as serving a different purpose. The dissent, written by Justice Fosheim, distinguishes the waiver of immunity for breach of contract claims, as found by the majority in Arcon, from a waiver of immunity for commercial torts, which the majority found in L.R. Foy. Specifically, the L.R. Foy dissent explains:

[T]here is a fundamental difference between Cement Plant's contractual and tort liability which makes it logical to interpret Art. XIII, § 11 as waiving immunity for the former but not for the latter. As the Arcon majority stated:

How can the state pledge its credit for cement plant operations if its credit obligations are not legally enforceable, or what business would contract with the cement plant if the cement plant is shielded from satisfying its contractual obligations? There can be no pledge of state credit without an obligation which is legally enforceable against the state.

349 N.W.2d at 411 (citations omitted). This basis which dictates the Cement Plant be amenable to its contracts does not exist regarding the plant's tort liability.

The language in the L.R. Foy majority reads, in this context, as a rationale for the extension of the waiver of immunity to include commercial torts, not necessarily as a description of the Cement Plant's degree of independence from the State for the purposes of diversity jurisdiction. An opinion must be read as a whole, not as solitary phrases or paragraphs. The L.R. Foy case should be interpreted in light of the fact that none of the state supreme court justices, in either Arcon or L.R. Foy, expressed the view that sovereign immunity was entirely inapplicable to the Cement Plant. They simply disagreed on the extent and origins of the waiver of that immunity in the specific contexts discussed. To rely upon the disputed language, as does defendant Wausau, to support the assertion that the Cement Plant is a citizen for the purposes of diversity jurisdiction is to apply dicta to the wrong proposition.

This Court is aware of the United States Supreme Court's decision that the Commerce Clause does not bar the State of South Dakota from favoring its own citizens when it sells cement and cement products. Reeves Inc. v. Stake, 447 U.S. 429, 100 S.Ct. 2271, 65 L.Ed.2d 244 (1980). South Dakota was categorized as a "market participant" in its actions regarding the Cement Plant. Yet the goals that the creation of the Cement Plant was designed to meet are described as governmental. Specifically, the majority states:

In establishing the plant, South Dakota sought the most unstartling governmental goal: improvement of the quality of life in that State by generating a supply of a previously scarce product needed for local construction and governmental improvements. A cement program, to be sure, may be a somewhat unusual or unorthodox way in which to utilize state funds to improve the quality of residents' lives. But `[a] State's project is as much a legitimate governmental activity whether it is traditional, or akin to private enterprise, or conducted for profit. . . . A State may deem it as essential to its economy that it own and operate a railroad, a mill, or an irrigation system as it does to own and operate bridges, street lights, or a sewage disposal plant. What might have been viewed in an earlier day as an improvident or even dangerous extension of state activities may today be deemed indispensable.'

While a state is similar to private business when it participates in the market in a purely proprietary capacity, it is also somewhat different. As a government providing a public service and utilizing the money and resources of its residents, it has a right and perhaps even an obligation to consider their common good and conserve their resources so long as it does not do so by attempting to regulate or control commerce among the states.

Similarly, this Court is faced with the initial question of attribution: Are the Cement Plant's activities of such a nature that any suit in which the Plant is involved regarding those activities is in effect a suit involving the State? This Court holds that, for the limited purposes of determining this Court's jurisdiction under 28 U.S.C. § 1332, they are. The State Cement Plant is an arm of the State and not a "citizen" for the purposes of diversity jurisdiction.

Plaintiff also alleges that the Eleventh Amendment of the United States Constitution bars federal jurisdiction in this case. The Eleventh Amendment provides as follows:

The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.

U.S. Const. amend. XI. In this case, the State is the plaintiff, not the defendant: the South Dakota Cement Plant filed suit against defendant Wausau, a Wisconsin corporation. The contention that the Eleventh Amendment nevertheless has bearing upon this Court's jurisdiction is not supported by any authority cited by either party. Accordingly, this Court will address the Eleventh Amendment claim no further.

This Court's holding is narrow: it resolves the instant issue of federal diversity jurisdiction. This decision does not address the related issues of sovereign immunity and any waivers thereof, as discussed in Arcon and L.R. Foy and as relied upon by the litigants. A majority of the South Dakota Supreme Court has found reasonable justifications for waiving the Cement Plant's sovereign immunity. The rationale for waiving immunity, however, does not necessarily apply to an analysis to determine federal diversity jurisdiction.

Because this Court lacks jurisdiction under 28 U.S.C. § 1332, the case is hereby remanded to the Sixth Judicial Circuit Court of the State of South Dakota.