                              In the

United States Court of Appeals
                For the Seventh Circuit

No. 08-1142

F REDDIE B URRUS, et al.,
                                                 Plaintiffs-Appellees,
                                  v.

S TATE L OTTERY C OMMISSION OF INDIANA, d/b/a
T HE H OOSIER L OTTERY,
                                    Defendant-Appellant.


             Appeal from the United States District Court
      for the Southern District of Indiana, Indianapolis Division.
              No. 05 C 1263—Sarah Evans Barker, Judge.



       A RGUED JUNE 6, 2008—D ECIDED O CTOBER 6, 2008




  Before B AUER, R IPPLE, and M ANION, Circuit Judges.
  M ANION, Circuit Judge. Plaintiffs, seven former employ-
ees of the State Lottery Commission of Indiana, which
does business under the name Hoosier Lottery (herein-
after “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
2                                                No. 08-1142

entitled to sovereign immunity pursuant to the Eleventh
Amendment. The district court denied the Lottery’s
motion, and we affirm.


                              I.
   The Indiana General Assembly created the Lottery in
1989 to operate lottery games “as a separate body politic
and corporate from state government.” 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. § 4-30-1-2(1), (3).
Over the years, the Lottery has more than proved its ability
to raise revenue: from its inception, the Lottery has made
over $3 billion in profits, including over $210 million in
fiscal year 2007 alone. Ind. State Budget Agency, Distribu-
tion of Build Indiana Fund and Lottery and Gaming
Revenues 3 (2007), http://www.in.gov/sba/files/LGS_
Distribution_Report_ 2007.pdf (last visited Sept. 23, 2008).
   To enable the Lottery to commence operations, the
Indiana General Assembly authorized up to $18 million in
start-up appropriations. As it turned out, the Lottery did
not need that much money to get up and running. The
Lottery’s audit statement of cash flows for its first
fiscal year shows that the money actually appropriated
from the State during that period was just over $6 million,
and that sum was promptly repaid with interest during
the same fiscal year. The parties have stipulated that the
Lottery’s financial reports show no other appropriations
from the state other than that initial, promptly repaid sum.
No. 08-1142                                                 3

   The governor of Indiana appoints a five-member com-
mission to operate the Lottery as well as a director, who
is charged with “maximiz[ing] revenues in a manner
consistent with the dignity of the state and the welfare of
its citizens.” Ind. Code §§ 4-30-5-1, -3. The Lottery is “a
body politic and corporate separate from the state.” Id. § 4-
30-3-1. It has the authority to sue and be sued in its own
name. Id. When the Lottery is sued, the director of the
Lottery makes the final decision about whether the
Lottery will agree to a settlement and how much the
Lottery will pay. When the Lottery pays a monetary
settlement or any other legal obligation, the money comes
from the Lottery’s administrative trust fund as a general
operating expense. Should the Lottery default on any of
its monetary obligations, the Indiana Attorney General’s
official position is that the state would not be liable. 1991
Ind. OAG No. 10.
  The Lottery deposits all of its revenue, which is “contin-
ually appropriated” to the Lottery, in an administrative
trust fund that is separate from the state’s general fund. See
Ind. Code §§ 4-30-15-1, 4-8.1-1-3. The money in the ad-
ministrative trust fund is used to pay the prizes and the
Lottery’s expenses, such as the cost of supplies and any
legal settlement or monetary judgment. Id. § 4-30-16-1.
After the payment of prizes and expenses, the surplus
revenue from the administrative trust fund is disbursed as
follows: $7.5 million each quarter goes to the state treasurer
for deposit in the Indiana state teachers’ retirement fund;
$7.5 million each quarter goes to the state treasurer for
deposit in the pension relief fund; and any surplus re-
maining in the Lottery fund on the last day of January,
4                                                No. 08-1142

April, July, and October after the transfers to the pension
funds goes to the state treasurer for deposit in the “build
Indiana fund.” Id. § 4-30-16-3. The build Indiana fund is
used for state or local capital projects, though prior to
using the funds for that purpose the state treasurer is
required to transfer $19,684,370 each month from the
build Indiana fund to what is exhaustively titled the “state
general fund motor vehicle excise tax replacement ac-
count.” Id. § 4-30-17-3.5(a). In the event that the funds
in the build Indiana fund are insufficient to meet the
required transfer amount, the “auditor of state” is required
to make up the difference from the state general fund.
Id. § 4-30-17-3.5(b).
   For the most part, the Lottery operates independently
from the state. It establishes its own annual budget and is
not required to submit its budget to the Indiana General
Assembly for approval. It determines the type of lottery
games it conducts and the manner in which it conducts
them. See id. § 4-30-3-7. It selects its own internal auditor.
It has the power to purchase its own insurance; own, sell,
and lease real and personal property; and own and
enforce copyrights, trademarks, and service marks. Id. §§ 4-
30-3-10 to -12. It has the power to enter into contracts
for the purchase or lease of goods and services. Id. §§ 4-30-
3-16 to -17. And it establishes and maintains its
own personnel program for its employees.
  Though the Lottery has substantial operational inde-
pendence, it is still heavily regulated by the state. The
Lottery is required to maintain weekly records of lottery
transactions. Id. § 4-30-3-4. It is subject to an annual audit
by the state board of accounts and the state budget agency.
No. 08-1142                                                     5

Id. §§ 4-30-19-1 to -2. It must submit revenue and expendi-
ture reports to the state budget agency and each legisla-
tive member of the budget committee upon request. Id. § 4-
30-19-4.2. It also has to submit monthly and annual reports
to the governor disclosing revenue, expenses, and prize
payouts. Id. § 4-30-3-3. In addition, the Lottery, like other
public entities, is subject to the Indiana Open Door Law,
see id. § 5-14-1.5-2(a)(3)(B), and the Indiana Public Records
Act, id. § 5-14-3-2(m)(8).
  This action was brought after each of the plaintiffs’
employment at the Lottery was terminated between
January and May 2005. All but one of the plaintiffs
brought their employment discrimination claims against
the Lottery solely under § 1981. The Lottery moved to
dismiss the plaintiffs’ § 1981 claims on the basis of sover-
eign immunity. The district court denied the motion, and
the Lottery appeals.1


                               II.
  This appeal presents only one issue: whether the Lottery
is entitled to assert state sovereign immunity under the
Eleventh Amendment to defeat the plaintiffs’ § 1981


1
  We have jurisdiction over this appeal pursuant to the collat-
eral order doctrine. Puerto Rico Aqueduct & Sewer Auth. v. Metcalf
& Eddy, Inc., 506 U.S. 139, 147 (1993) (holding that “States and
state entities that claim to be ‘arms of the State’ may take
advantage of the collateral order doctrine to appeal a district
court order denying a claim of Eleventh Amendment immu-
nity”).
6                                                  No. 08-1142

claims. Our review of that issue is de novo. Wisconsin v. Ho-
Chunk Nation, 512 F.3d 921, 929 (7th Cir. 2008) (noting that
a grant or denial of sovereign immunity is reviewed
de novo).
   The Eleventh Amendment provides: “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. “Although the Amendment speaks of suits
filed by citizens of another state, the Supreme Court ‘has
consistently held that an unconsenting State is immune
from suits brought in federal courts by her own citizens
as well as by citizens of another State.’ ” Peirick v. IUPUI
Athletics Dep’t, 510 F.3d 681, 694-95 (7th Cir. 2007) (quoting
Edelman v. Jordan, 415 U.S. 651, 662-63 (1974) (internal
citations omitted)). In addition, the Supreme Court has
held that state agencies, as arms of the state, are
immune from suit under the Eleventh Amendment. See
Edelman, 415 U.S. at 663; see also Joseph v. Bd. of Regents
of Univ. of Wis. Sys., 432 F.3d 746, 748 (7th Cir. 2005).
  The Lottery claims that it is a state agency; the plaintiffs
assert that it is not. To determine if a particular entity is an
arm of the state, courts look 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. Kashani v.
Purdue Univ., 813 F.2d 843, 845-47 (7th Cir. 1987). Of
the two, the entity’s financial autonomy is the “most
important factor.” Peirick, 510 F.3d at 695; see also
Edelman, 415 U.S. at 663. In evaluating that factor, we
No. 08-1142                                                  7

consider the extent of state funding, the state’s oversight
and control of the entity’s fiscal affairs, the entity’s
ability to raise funds independently, whether the state
taxes the entity, and whether a judgment against the
entity would result in the state increasing its appropria-
tions to the entity. Kashani, 813 F.2d at 845; see also Hess v.
Port Auth. Trans-Hudson Corp., 513 U.S. 30, 48 (1994)
(recognizing “the vulnerability of the State’s purse as the
most salient factor in Eleventh Amendment determina-
tions”).
  Taking into account these considerations, we find that
the first factor cuts heavily against finding that the Lottery
is an arm of the state of Indiana. The 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. The
revenue the Lottery generates from the games is
enormous, totaling billions of dollars in profits alone.
Given that large stream of revenue, the Lottery has no
need for recourse to the state treasury. The Lottery has not
received any funds from the state treasury since the
$6 million given upon its inception, and that money was
quickly paid back with interest.
  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. See 1991 Ind.
8                                                   No. 08-1142

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. Because the Lottery
raises revenue on its own account, controls and funds
its own operations, and does not expose state coffers
when monetary judgements are rendered against it, we
conclude that it is an entity financially independent from
the state. Cf. Miller-Davis Co. v. Ill. State Toll Highway Auth.,
567 F.2d 323, 327 (7th Cir. 1977) (holding that the
Eleventh Amendment did not bar suit against the
Illinois State Toll Highway Authority where the highway
authority raised its own revenue through bonds and tolls
and the state expressly disclaimed liability for the bonds).
  The Lottery’s protests to the contrary are unavailing. The
Lottery argues that it maintains significant financial ties
to the state because its primary purpose is to raise
revenue for the state. According to the Lottery, should a
monetary judgment deprive it of the ability to meet its
revenue goals, the state would have less revenue, thereby
impacting the state treasury. It is undisputed that a great
portion of Lottery revenues—the money left over after
the Lottery’s operating costs are covered—is transferred
to the Indiana state teachers’ retirement fund, the Indiana
pension relief fund, and the build Indiana fund. And it is
also undisputed that, according to statute, if the build
Indiana fund has insufficient funds to meet its transfer
requirements to the state general fund motor vehicle
excise tax replacement account, the state has to tap the
general fund to make up the difference. See Ind. Code § 4-
30-17-3.5(b). (Although not mentioned in the record, we
will even assume that the same is true of the other two
funds.)
No. 08-1142                                                9

   Nevertheless, that is not the type of effect on the state
fisc that our prior cases have considered the mark of a
state agency. We have been concerned with the effect of
monetary judgments on the state treasury only when the
entity against which the judgment is rendered is depend-
ent on state appropriations. See, e.g., Kashani, 813 F.2d at
846 (“If a judgment were awarded against Purdue, the
state treasury would not write out a check to Kashani.
But in view of the fact that Purdue is by design dependent
on state appropriations, which are evidently carefully
geared through close oversight to meet the changing
financial needs of the university, it is apparent that the
payment would directly affect the state treasury.”). In
contrast, the Lottery is not dependent on state funds for
its operations. There are therefore no fungible funds from
the state treasury that would have to be replaced in the
event of a judgment award. The state may be deprived of
some of its anticipated (and hoped-for) revenue, but “the
Supreme Court has rejected the state-benefit theory of
sovereign immunity.” Takle v. Univ. of Wis. Hosp. & Clinics
Auth., 402 F.3d 768, 770 (7th Cir. 2005). According to the
Supreme Court,
    The proper focus is not on the use of profits or surplus,
    but rather is on losses and debts. If the expenditures
    of the enterprise exceed receipts, is the State in fact
    obligated to bear and pay the resulting indebtedness
    of the enterprise? When the answer is “No”—both
    legally and practically—then the Eleventh Amend-
    ment’s core concern is not implicated. . . . It would
    indeed heighten a “myster[y] of legal evolution” were
    we to spread an Eleventh Amendment cover over an
10                                             No. 08-1142

     agency that consumes no state revenues but contrib-
     utes to the State’s wealth.
Hess, 513 U.S. at 51 and n.21. The Lottery is a pure profit
producer for the state, with no potential for the state to
incur debt. The fact that a judgment against the Lottery
may “affect” the state treasury in the sense that the state
treasury will not be quite as flush absent the money
paid the plaintiffs by the Lottery is not pertinent to the
Eleventh Amendment analysis.
  In arguing that it is financially dependent on the state,
the Lottery also points to a statute that states that the
money in the Lottery’s administrative trust fund is
“continually appropriated to the commission for the
purposes specified in this article.” Ind. Code § 4-30-15-1.
The money in the Lottery’s administrative trust fund is
completely generated by the Lottery. The Lottery is a
source for state revenue, not a siphon. The type of “appro-
priation” referred to in § 4-30-15-1 of the Indiana Code
is therefore not an appropriation from the state treasury.
Thus, it is of a different kind than the appropriations
we have found to be the mark of a state agency, namely,
those appropriations that come “directly from the state.”
Kashani, 813 F.2d at 845.
   Moving on to the second factor—the general legal status
of the entity—it too supports a conclusion that the Lottery
is not an arm of the state. 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 trade-
marks and service marks; sell, own, and lease property;
and sue and be sued in its own name. Furthermore, the
No. 08-1142                                                 11

statute creating the Lottery states that the Lottery is “a
body politic and corporate separate from the state,” Ind.
Code § 4-30-3-1 (emphasis added), and should “function
as much as possible as an entrepreneurial business enter-
prise.” Id. § 4-30-1-2(1). The Indiana Attorney General,
interpreting that statutory language, determined that the
state will not be liable for any financial obligations of the
Lottery. 1991 Ind. OAG No. 10. And the Indiana Supreme
Court, in applying that statutory language, has held
that employees of the Lottery are not employees of the
state of Indiana. Nobles v. Cartwright, 659 N.E.2d 1064, 1072
(Ind. Ct. App. 1995). In short, the state acts like the Lottery
is a separate entity. While the question of sovereign
immunity is a matter of federal law, the state of Indiana’s
own view of the entity it created is significant. See Peirick,
510 F.3d at 696. And the manner in which Indiana law
treats the Lottery cuts heavily against finding that the
Lottery is an arm of the state.
   The Lottery, unsurprisingly, takes a different view of
its status vis à vis the state. The Lottery points to the
fact that the governor appoints the members of the com-
mission that operates the Lottery in an attempt to show
that it is a mere appendage of the state. But “the power
to appoint is not the power to control.” Takle, 402 F.3d at
770; see also Auer v. Robbins, 519 U.S. 452, 456 n.1 (1997)
(noting that although the governor appointed four of the
five-member board of police commissioners, the “board
[was] not subject to the State’s direction or control in any
other respect”). As we have explained above, despite the
governor’s appointment of its commissioners, the Lottery
sets its own budget, controls its day-to-day operations,
sues in its own name, and brings in its own revenue.
12                                                No. 08-1142

Indeed, with respect to litigation, the director of the
Lottery, and not a state officer like the attorney general,
makes the final decision about whether the Lottery will
agree to a settlement and how much the Lottery will pay.
  Moreover, the governor’s power to appoint the Lottery
commissioners is overshadowed by the Lottery’s finan-
cial independence from the state. “[W]here the evidence is
that the state did not structure the entity to put the state
treasury at risk of paying the judgment, then the fact that
the state appoints the majority of the governing board of
the agency does not itself lead to the conclusion that the
entity is an arm of the state.” Fresenius Med. Care Cardiovas-
cular Res., Inc. v. P.R. & Caribbean Cardiovascular Ctr. Corp.,
322 F.3d 56, 68 (1st Cir. 2003). “Moreover, rendering [the
control that comes through the exercise of a governor’s
appointment power] dispositive does not home in on the
impetus for the Eleventh Amendment: the prevention of
federal-court judgments that must be paid out of a State’s
treasury.” Hess, 513 U.S. at 48.
   Here, there is no question that the state of Indiana
intended to protect its state purse from a judgment
against the Lottery. The several provisions from the
Indiana Code cited above clearly establish the Lottery as
an entity separate from the state. And the official opinion
of the Indiana Attorney General verifies that the Lottery
is not an agency of the state. Accordingly, that the Lottery
operates independently from Indiana’s state treasury is
the determinative factor in the Eleventh Amendment
analysis. That factor greatly outweighs the fact that Indi-
ana’s governor appoints the Lottery commissioners. See
id. at 47-48; Takle, 402 F.2d at 770-71.
No. 08-1142                                              13

  We are similarly unpersuaded by the Lottery’s reference
to the state regulations to which it is subjected. The
regulations demonstrate that the public takes a healthy
interest in its operation, like the public does with a
utility or any other quasi-public entity. Beyond that,
however, the regulations for Eleventh Amendment pur-
poses are not significant. Similar regulations did not
change our conclusion in Takle that the University of
Wisconsin Hospital and Clinics Authority was not an
arm of the state of Wisconsin. See Takle, 402 F.3d at 771
(referring to the fact that the University of Wisconsin
Hospital and Clinics Authority was subjected to Wiscon-
sin’s open-meeting laws as “minor strings”); see also
Durning v. Citibank, N.A., 950 F.2d 1419, 1427 (9th Cir.
1991) (“Admittedly, the Authority is more closely tied to
the state than an ordinary corporation. The governor and
state treasurer serve on its board, and it is subject to the
state’s open meetings law. Nonetheless, its separate
corporate status is clearly established.”). Likewise, the
existence of such regulations does not alter our conclu-
sion here. The Lottery is not entitled to invoke the
Eleventh Amendment.


                            III.
  The Lottery is not entitled to sovereign immunity
because it is not an arm of the state. We therefore A FFIRM
the decision of the district court denying the Lottery
immunity from the plaintiffs’ 42 U.S.C. § 1981 claims.



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