On June 19, 2015, the US Court of Appeals for the Tenth Circuit held in Arbogast v. State of Kansas, Department of Labor, that the court could not exercise appellate jurisdiction over the Kansas Department of Labor's (KDOL) argument that it lacked the capacity to sue and be sued under Kansas Law (No. 14-3091, (10th Cir. June 19, 2015)). However, the court held that it did have jurisdiction to consider the KDOL's argument that it was immune from suit under the Eleventh Amendment to the US Constitution, and affirmed the district court's ruling that the KDOL waived its Eleventh Amendment immunity by accepting federal funds for its Unemployment Insurance Division.

Plaintiff was an employee of the Workers Compensation Division of the KDOL who suffered from asthma and complained that perfumes and other fragrances in the workplace were impairing her ability to work. After her termination, she commenced an action against the KDOL and the then-Secretary of Labor, alleging claims of discrimination and retaliation in violation of the Rehabilitation Act of 1973. The KDOL moved to dismiss Plaintiff's claims, arguing that:

The district court denied the KDOL's motion to dismiss because it found that the KDOL had waived its Eleventh Amendment immunity by accepting federal funds for its Unemployment Insurance Division. The district court held that the KDOL's acceptance of federal funds for the Unemployment Insurance Division was sufficient to waive Eleventh Amendment immunity for the entirety of the KDOL, including the Workers Compensation Division, and rejected KDOL's argument that it did not have the capacity to be sued. The KDOL challenged the district court's denial of its motion to dismiss by filing an interlocutory appeal.

The Tenth Circuit first considered whether it had jurisdiction to hear the KDOL's appeal. Federal appellate courts can hear interlocutory appeals if either:

Orders denying state entities Eleventh Amendment immunity are immediately reviewable under the collateral order doctrine, which permits interlocutory appeals when a district court's order:

The district court's determination regarding the KDOL's capacity to be sued was not reviewable under the collateral order doctrine because the district court did not conclusively determine the KDOL's ability to sue or be sued under Kansas law. The district court had dismissed the argument in just three sentences and conflated it with the immunity argument. Therefore, the district court's analysis did not squarely address whether the KDOL has the statutory capacity to be sued under Kansas law.

The Tenth Circuit also held that it lacked pendent appellate jurisdiction to address the capacity claim because pendent appellate jurisdiction is limited in the collateral order context to situations where the otherwise nonappealable decision is "inextricably intertwined" with the appealable decision or where consideration of the nonappealable decision is necessary to ensure meaningful review of the appealable decision. Because the question of whether the KDOL had the capacity to be sued under Kansas law was independent of the issue of Eleventh Amendment immunity, the Tenth Circuit ruled that it did not have pendent appellate jurisdiction over that question.

The Tenth Circuit affirmed the district court's holding that the KDOL had waived Eleventh Amendment immunity for the entirety of the KDOL by accepting federal funds for its Unemployment Insurance Division. The Rehabilitation Act, which prohibits discrimination by any program receiving federal financial assistance, explicitly states that if "any part" of a department, agency or other instrumentality of a State or local government receives federal financial assistance, immunity is waived for that program or activity. Because the Workers Compensation Division is part of the KDOL, the KDOL waived immunity as to Plaintiff's claim.