Posted on:Features, Funds, Glenn West Musings, Insights, Legal Developments, What's New on the Watch?
After the rejection of monarchy as an acceptable form of government, the various U.S. states that constituted themselves as the United States of America uniformly embraced the system of law with which they were most familiar—the English common law. Curiously, one of the principles derived from the English common law was the doctrine of rex non potest peccare, or “the king can do no wrong.” So, having established themselves around the basic proposition that they had been “wronged” by the then King of England, both the federal and the various state governments all firmly embraced the doctrine of sovereign immunity, whereby the state and federal governments took on the role of the “King” (for this purpose at least). The result of this doctrine is that unless a governmental entity consents (through legislation permitting suit) or is acting in some extra-governmental or unconstitutional capacity, your ability to sue or enforce a judgement against a governmental entity or official for anything is severely constrained. This can occasionally raise issues with respect to the enforceability of capital commitments from state pension funds, depending on the particular state sovereign immunity regime.
One such example of contracts with state pension funds raising issues of immunity from suit and enforcement is the Texas case of TRST Corpus, Inc. v. Financial Center, Inc., 9 S.W.3d 316 (Tex. App. 1999), where a Texas court held that an affiliate of a Texas retirement fund could not be sued for money damages arising out of a breach of contract. Although the sovereign entity apparently waived its immunity from liability by entering into a contract with a private citizen, as the court explained, this alone was insufficient to permit an actual suit for money damages. While Texas cases appear to permit suits to determine or protect rights against a sovereign entity, they do not permit suits that actually seek money damages absent “[l]egislative consent for suit.”
The idea that sovereign immunity can be used as a shield by governmental entities is one thing, but the idea that a governmental entity can use sovereign immunity as a sword to sever the benefits of applicable statutes of limitations is even more concerning. In Tennessee Consolidated Retirement System v. J. P. Morgan Securities LLC, No. 13-1729-11, a Tennessee Chancery Court recently determined that a law suit, filed by a state retirement system, more than 8 years after the alleged claims of fraud and negligent misrepresentation with respect to the purported sale of residential mortgage-backed securities, was not barred by Tennessee’s 3 year statute of limitations for such suits.
And how was this remarkable determination made? Well, it was based upon another Latin phrase derived from the English common law and deemed applicable to the retirement system as a state agency—nullum tempus occurrit regi, which means “no time runs against the king.” According to the court, state agencies are different than everyone else—they have a royal pedigree, and as a result they are allowed, unlike private citizens, “to file suit and pursue whoever defrauded the State” whenever they “discern how and who defrauded the State.” And if the word defrauded makes you feel comfortable (because that could never apply to you), please note that the negligent misrepresentation claim, which would have otherwise been barred by the application of the statute of limitations for any other plaintiff, was also allowed to be maintained.
Sovereign immunity can impact sponsors both in terms of what rights the sponsors have against the sovereign entities as well as in terms of what rights the sovereign entities have against the sponsors. And the law that governs the extent of the rights and protections enjoyed by these sovereign entities varies by state according to their applicable sovereign immunity regime.