                    United States Court of Appeals
                            FOR THE EIGHTH CIRCUIT
                                   _____________

                                   No. 98-1830EA
                                   _____________

Jim C, individually and as parent        *
and next friend of J.C., and Susan C,    *
individually and as parent and next      *
friend of J.C.,                          *
                                         *
             Appellees,                  *
                                         *
      v.                                 *
                                         *   On Appeal from the United
United States of America,                *   States District Court
                                         *   for the Eastern District
             Intervenor on Appeal,       *   of Arkansas.
                                         *
Atkins School District, and Arch Ford    *
Education Service Cooperative,           *
                                         *
             Defendants,                 *
                                         *
Arkansas Department of Education,        *
                                         *
             Appellant.                  *

                                     ___________

                            Submitted: January 14, 2000
                                Filed: December 22, 2000
                                    ___________

Before WOLLMAN, Chief Judge, McMILLIAN, RICHARD S. ARNOLD,
      BOWMAN, BEAM, LOKEN, HANSEN, MORRIS SHEPPARD ARNOLD,
      MURPHY, and BYE, Circuit Judges.
                                      ___________

RICHARD S. ARNOLD, Circuit Judge, joined by WOLLMAN, Chief Judge, and
     McMILLIAN, HANSEN, MORRIS SHEPPARD ARNOLD, and MURPHY,
     Circuit Judges.


       Plaintiffs, parents of a child with autism, brought this suit against the defendant,
the Arkansas Department of Education. They alleged that the defendant had failed to
comply with its obligations under certain statutes, including Section 504 of the
Rehabilitation Act of 1973, 29 U.S.C. § 794. The defendant moved to dismiss the suit,
asserting sovereign immunity, as recognized by the Eleventh Amendment. The District
Court1 denied the motion, holding that the abrogation provision of Section 504, 42
U.S.C. § 2000d-7(a)(1), was a valid exercise of Congress's power under Section 5 of
the Fourteenth Amendment. On appeal, a panel of this Court reversed, holding that
Section 504 could not be upheld as Section 5 legislation. Bradley v. Arkansas
Department of Education, 189 F.3d 745, 756 (8th Cir. 1999). The panel then
considered whether Arkansas had waived its sovereign immunity with respect to
Section 504 by accepting federal funds. The panel held that there was no waiver,
concluding that Section 504 was not a valid exercise of Congress's spending power
because the conditions it placed on a State's receipt of federal funds were too broad and
therefore coercive. Id. at 758. We granted plaintiffs' suggestion for rehearing en banc
on the spending-power issue alone, vacating that portion of the panel's opinion and
judgment. We hold that Section 504 is a valid exercise of Congress's spending power,
and that Arkansas waived its immunity with respect to Section 504 suits by accepting
federal funds. The judgment of the District Court, denying the State's motion to
dismiss, will therefore be affirmed.




      1
        The Hon. Garnett Thomas Eisele, United States District Judge for the Eastern
District of Arkansas.
                                            -2-
       Section 504 of the Rehabilitation Act prohibits "any program or activity" that
receives federal financial assistance from discriminating against a qualified individual
with a disability. 29 U.S.C. § 794(a). The statute, in relevant part, defines "program
or activity" as:

      all of the operations of --

      (1)(A) a department, agency, special purpose district, or other
      instrumentality of a State or of a local government; or

      (B) the entity of such State or local government that distributes such
      assistance and each such department or agency (and each other State or
      local government entity) to which the assistance is extended, in the case
      of assistance to a State or local government;

      ....

      any part of which is extended Federal financial assistance.


29 U.S.C. § 794(b). Under this definition, the State itself as a whole is not a program
or activity. Rather, as we have previously noted, "only the department or agency which
receives [or distributes] the aid is covered." Klinger v. Dep't of Corrections, 107 F.3d
609, 615 (8th Cir. 1997) (quoting S. Rep. No. 100-64, 100th Cong., 2d Sess. 4 (1988),
reprinted in 1988 U.S.C.C.A.N. (Legislative History) 3, 6.2 The acceptance of funds




      2
        Klinger dealt with Title IX's definition of "program or activity," 20 U.S.C.
§ 1687, which is identical to the definition in Section 504 of the Rehabilitation Act, 29
U.S.C. § 794(b). Both Title IX and Section 504 were amended by the Civil Rights
Restoration Act of 1987, Pub. L. No. 100-259, 102 Stat. 28 (1988), to add this
definition of "program or activity."
                                           -3-
by one state agency therefore leaves unaffected both other state agencies and the State
as a whole.3

        The Rehabilitation Act requires States that accept federal funds to waive their
Eleventh Amendment immunity to suits brought in federal court for violations of
Section 504. 42 U.S.C § 2000d-7. Since Section 504 covers only the individual
agency or department that accepts or distributes federal funds, this waiver requirement
is limited in the same way. By accepting funds offered to an agency, the State waives
its immunity only with regard to the individual agency that receives them. A State and
its instrumentalities can avoid Section 504's waiver requirement on a piecemeal basis,
by simply accepting federal funds for some departments and declining them for others.
The State is accordingly not required to renounce all federal funding to shield chosen
state agencies from compliance with Section 504.

      The defendant argues that Section 504's waiver requirement exceeds Congress's
spending power by placing overly broad and therefore coercive conditions on federal
funds. We disagree. Congress is empowered to "lay and collect Taxes, Duties,
Imposts, and Excises, to pay the Debts and provide for the common Defence and
general Welfare of the United States." U.S. Const. art. I, § 8, cl. 1. "Incident to this
power, Congress may attach conditions on the receipt of federal funds . . .." South
Dakota v. Dole, 483 U.S. 203, 206 (1987). Specifically, Congress may require a
waiver of state sovereign immunity as a condition for receiving federal funds, even
though Congress could not order the waiver directly. College Savings Bank v. Florida


      3
        If the entire state government were subject to Section 504 whenever any of its
parts received federal funds, then subsection (b)(1)(B) would be superfluous; both the
distributing and receiving state entities would be already covered under (b)(1)(A)
whenever either received federal funds. Other circuits interpreting this definition of
"program or activity" have come to the same conclusion. Lightbourn v. County of El
Paso, Texas, 118 F.3d 421, 427 (5th Cir. 1997); Schroeder v. City of Chicago, 927
F.2d 957, 962 (7th Cir. 1991).
                                          -4-
Prepaid Postsecondary Education Expense Board, 119 S. Ct. 2219, 2231 (1999).
While it appears, as the defendant urges, that the "financial inducements" employed by
Congress can become so "coercive as to cross the point where 'pressure turns into
compulsion,' " that limit has not been crossed here. Id. (citations omitted).

       To avoid the effect of Section 504 on the Arkansas Department of Education, the
State would be required to sacrifice federal funds only for that department. This
requirement is comparable to the ordinary quid pro quo that the Supreme Court has
repeatedly approved; the State is offered federal funds for some activities, but, in
return, it is required to meet certain federal requirements in carrying out those activities.
See, e.g., Lau v. Nichols, 414 U.S. 563, 566-67 (1974) (upholding Congress's power
to condition federal education funds on non-discrimination in the funded programs).
In these cases, the Court has found no coercive interference with state sovereignty
because the State could follow the " 'simple expedient' of not yielding. . .." State of
Oklahoma v. United States Civil Service Commission, 330 U.S. 127, 143-44 (1947).
Likewise here, the Arkansas Department of Education can avoid the requirements of
Section 504 simply by declining federal education funds. The sacrifice of all federal
education funds, approximately $250 million or 12 per cent. of the annual state
education budget according to the 1999-2001 Biennial Budget, 28-29, would be
politically painful, but we cannot say that it compels Arkansas's choice. Cf. New York
v. United States, 505 U.S. 144, 168 (1992) ("By [employing the spending power to
attach conditions on the States' receipt of federal funding], as by any other permissible
method of encouraging a State to conform to federal policy choices, the residents of the
State retain the ultimate decision as to whether or not the State will comply. If a State's
citizens view federal policy as sufficiently contrary to local interests, they may elect to
decline a federal grant.") The choice is up to the State: either give up federal aid to
education, or agree that the Department of Education can be sued under Section 504.
We think the Spending Clause allows Congress to present States with this sort of
choice.


                                             -5-
      With regard to the requirements of Atascadero State Hosp. v. Scanlon, 473 U.S.
234, 247 (1985), the Rehabilitation Act's waiver provision, 42 U.S.C. § 2000d-7(a)(1),
provides a clear expression of Congress's "intent to condition participation in the
program[ ] . . . on a State's consent to waive its constitutional immunity." See Lane v.
Pena, 116 S. Ct. 2092, 2100 (1996); Little Rock School District v. Mauney, 183 F.3d
816, 831 (8th Cir. 1999). We hold, therefore, that Arkansas waived sovereign
immunity, with respect to suits under Section 504 against the Department of Education,
when it chose to participate in the federal spending program created by that Section.

       The panel opinion took the position that the waiver required would cover all
activities of the State, not just the activities of the department or departments receiving
federal funds. As a matter of statutory interpretation, we disagree: for reasons we have
given, Section 504's definition of "program or activity" is not that broad. We
acknowledge that the waiver does cover all activities of the Department of Education,
and not merely those activities specifically supported by Section 504 funds. We do not
consider such a choice unconstitutionally "coercive." The State may take the money
or leave it. Other than the vacated panel opinion in this case, we know of no authority
holding any choice so coercive as to exceed the limits of the Spending Clause.
Sovereign states are fully competent to make their own choice.

      The judgment is affirmed.

BOWMAN, Circuit Judge, dissenting, joined by BEAM, LOKEN, and BYE, Circuit
   Judges.

      I respectfully disagree with the Court's decision. I do so for two separate,
independent reasons, either of which, in my view, requires reversal of the District
Court. I state them briefly.




                                            -6-
        First, the financial inducement offered by Congress for the Arkansas Department
of Education to waive its Eleventh Amendment immunity with respect to Rehabilitation
Act claims is coercive. The Supreme Court explicitly has recognized that financial
pressure applied by Congress may “pass the point at which ‘pressure turns into
compulsion.’” South Dakota v. Dole, 483 U.S. 203, 211 (1987) (quoting Steward
Mach. Co. v. Davis, 301 U.S. 548, 590 (1937)). In Dole, the Court rejected the
argument as to coercion on the ground that South Dakota would lose only 5% of its
federal money for highways if South Dakota declined to raise the minimum drinking
age to twenty-one as Congress wished. Inasmuch as the condition imposed by
Congress placed only a small percentage of the state's federal money for highways at
risk, “the argument as to coercion is shown to be more rhetoric than fact.” Id.

       In contrast, here we confront a Congressional directive that places at risk 100%
of Arkansas's federal funding for education—some $250,000,000 a year at last report.
This amount of money to support public education could not easily be replaced by
Arkansas, and public education undoubtedly would suffer if Arkansas failed to yield
the requested waiver of its Eleventh Amendment immunity. The money would have
to be shifted from other needy portions of Arkansas's budget or raised by the imposition
of additional taxes. Either course assuredly would present great difficulty. And either
way, federal taxpayers in Arkansas would be deprived of the benefits of a return from
the federal government to the state of a significant amount of the federal tax monies
collected from Arkansans. Moreover, we should not be unmindful of how unpopular
and potentially counter-productive it is to increase state taxes when federal taxes
(especially when taken in combination with existing state and local taxes) are at a very
high level, as they currently are and have been for many years.1 In sum, the proportion
of federal funds for education in Arkansas here placed at risk by the federal scheme
(100%), the amount of those funds (some $250,000,000), and the difficulty of making


      1
      For a scholarly explication of this point, see Lynn A. Baker, Conditional Federal
Spending After Lopez, 95 Colum. L. Rev. 1911, 1935-39 (1995).
                                          -7-
up for the loss of those funds if the State elects not to waive its Eleventh Amendment
immunity with respect to Rehabilitation Act claims all lead to the conclusion that
pressure has turned into compulsion and that the waiver given by the State is therefore
unenforceable.

        Second, as our Court held in a portion of the panel opinion not affected by the
en banc proceedings in this case, § 504 of the Rehabilitation Act and its related
abrogation clause do not abrogate the states' Eleventh Amendment immunity. That is
so because the Rehabilitation Act imposes duties upon the states exceeding those
commanded by the Fourteenth Amendment, and thus is beyond the power over the
states given to Congress by § 5 of that amendment. For the panel's complete analysis
of this point, see Bradley v. Arkansas Department of Education, 189 F.3d 745, 754-56
(8th Cir. 1999). The question then becomes whether Congress, in the guise of
Spending Clause legislation, can achieve indirectly what it cannot constitutionally
achieve directly. That is, can Congress get its way by presenting the states with the
Hobson's choice of either waiving their Eleventh Amendment immunity from § 504
claims or foregoing all federal funds to support various traditional state activities such
as education, highways, and the like? Professor Lynn A. Baker has brilliantly captured
the essence of this question:

      So long as [Article I, which enumerates all the powers granted to
      Congress by the original Constitution] is not interpreted to grant Congress
      plenary power to regulate the states directly, the Tenth Amendment's
      reservation to the states of all powers not delegated to the federal
      government has content and significance. But if the Spending Clause is
      simultaneously interpreted to permit Congress to seek otherwise
      forbidden regulatory aims indirectly through a conditional offer of federal
      funds to the states, the notion of “a federal government of enumerated
      powers” will have no meaning.




                                           -8-
Lynn A. Baker, Conditional Federal Spending After Lopez, 95 Colum. L. Rev. 1911,
1920 (1995) (footnote omitted). As Professor Baker noted, Justice O'Connor has
sounded the same theme:

      If the spending power is to be limited only by Congress' notion of the
      general welfare, the reality, given the vast financial resources of the
      Federal Government, is that the Spending Clause gives “power to the
      Congress to tear down the barriers, to invade the states' jurisdiction, and
      to become a parliament of the whole people, subject to no restrictions
      save such as are self-imposed.” This, of course, . . . was not the Framers'
      plan and it is not the meaning of the Spending Clause.

Dole, 483 U.S. at 217 (O'Connor, J., dissenting) (citation omitted) (quoting United
States v. Butler, 297 U.S. 1, 78 (1936)).

        For the majority of the Court in Dole, the proper way to limit the Spending
Clause (besides applying the coercion test) is to require, among other things, that any
conditions placed on federal grants to the states be related “to the federal interest in
particular national projects or programs.” Id. at 207 (quoting Massachusetts v. United
States, 435 U.S. 444, 461 (1978) (plurality opinion)). The Court found that this test
was satisfied in Dole inasmuch as the condition imposed by Congress (raising the
state's drinking age to twenty-one) was directly related to the federal interest in safe
interstate travel, which the Court found to be “one of the main purposes for which
[federal] highway funds are expended.”2 Id. at 208.

       The kind of finding made in Dole could not plausibly be made in this case. Here,
the condition (waiver of Eleventh Amendment immunity with respect to Rehabilitation


      2
        Justice O'Connor would have found the condition “not sufficiently related to
interstate highway construction” and therefore would have held the condition invalid.
Dole, 483 U.S. at 214; see id. at 218.
                                          -9-
Act claims) bears no direct relationship (indeed, not even a discernible relationship) to
the purpose of most federal grants to the states for education. That purpose, broadly
stated, is to improve the overall quality of education.                Admittedly, fair,
nondiscriminatory treatment for disabled persons is part of the total picture, but it is
only a small part. Although it presumably would be permissible for Congress to
condition the receipt of any grants it might make specifically for Rehabilitation Act
purposes upon a waiver of state immunity from § 504 claims—a normal quid pro
quo—it is not permissible to condition the receipt of other, unrelated federal grants for
education upon such a waiver. Conditions on the receipt of federal funds always must
“bear some relationship to the purpose of the federal spending; otherwise, of course,
the spending power could render academic the Constitution's other grants and limits of
federal authority.” New York v. United States, 505 U.S. 144, 167 (1992) (citation
omitted). Thus, because the condition imposed in this case is overbroad, going as it
does to all federal funds received by the Arkansas Department of Education, no matter
what the particular purpose of the funds, the State's waiver of its Eleventh Amendment
immunity has not been validly exacted.

       For either or both of the reasons outlined above, I would hold that plaintiffs'
§ 504 claim against the Arkansas Department of Education should be dismissed as
barred by the Eleventh Amendment. Accordingly, I would reverse the decision of the
District Court allowing the suit to go forward on this claim.

             —      —      —      —      —       —    —      —      —      —

       Over the past several years, the Supreme Court in a series of cases has rigorously
applied the constitutional prohibition against Congress's use of its Article I powers as
a basis for abrogating the Eleventh Amendment immunity of the states. See Kimel v.
Fla. Bd. of Regents, 528 U.S. 62 (2000) (holding that Age Discrimination in
Employment Act did not validly abrogate states' Eleventh Amendment immunity from
individual suits because abrogation exceeded Congress's authority under § 5 of

                                          -10-
Fourteenth Amendment, and reiterating that no such authority exists under Article I);
Fla. Prepaid Postsecondary Educ. Expense Bd. v. Coll. Sav. Bank, 527 U.S. 627
(1999) (holding that congressional attempt to abrogate states' sovereign immunity from
patent infringement claims under Patent and Plant Variety Protection Remedy
Clarification Act was invalid exercise of Article I commerce or patent powers and not
justified under Fourteenth Amendment § 5 enforcement powers); Coll. Sav. Bank v.
Fla. Prepaid Postsecondary Educ. Expense Bd., 527 U.S. 666 (1999) (holding that
Congress did not abrogate states' Eleventh Amendment immunity from suit under
Trademark Remedy Clarification Act because Act identified no property right protected
by Fourteenth Amendment, whose § 5 enforcement powers were only possible basis
for purported abrogation); Seminole Tribe v. Florida, 517 U.S. 44 (1996) (holding, in
seminal case, that Indian Gaming Regulatory Act could not abrogate states' sovereign
immunity as exercise of Congress's power under Indian Commerce Clause because
Article I powers could not circumvent Eleventh Amendment restrictions on Article III
judicial power).

        The Court's holdings in these cases reflect the rock-solid principle that Eleventh
Amendment immunity trumps any exercise of the powers of Congress enumerated in
the original Constitution; controlling weight must be given to the provision that became
part of the Constitution later in time. I am struck, however, by how easy it would be,
if the majority of our Court has decided this case correctly, for Congress to overcome
this limitation on its power. By resort to the spending power (another Article I power,
by the way), Congress could achieve indirectly the same abrogation of Eleventh
Amendment immunity it could not achieve directly. Congress could do this by the
simple expedient of coupling an abrogation provision with a provision conditioning the
states' receipt of any or all federal funds upon the states' waiver of Eleventh
Amendment immunity with respect to whatever sorts of claims Congress might specify.
Given the financial and political reality within which state governments struggle to fund
their operations adequately, most if not all of the states would yield. The same scenario
could unfold with respect to other kinds of conditions on the states' receipt of federal

                                          -11-
funds, with Congress achieving through the spending power ends it otherwise lacks the
constitutional authority to pursue. Truly, the view of the Spending Clause taken by the
majority of the Court in today's decision gives “power to the Congress to tear down the
barriers, to invade the states' jurisdiction, and to become a parliament of the whole
people, subject to no restrictions save such as are self-imposed.” Butler, 297 U.S. at
78. It seems quite clear to me that the Framers never intended the Spending Clause to
become an enabling provision for the otherwise unconstitutional exercise of federal
power over the states. Yet this is precisely what today's decision ordains. If our Court
will not take a hard look at the anomaly created by a “spending power über alles”
mentality, perhaps the Supreme Court will.

      A true copy.

             Attest:

                     CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.




                                         -12-
