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September 18, 1986


The opinion of the court was delivered by: WEXLER


WEXLER, District Judge

 Plaintiffs William J. Levitt and the Levitt Community Corp. ("LCC"), both allegedly of New York, commenced this diversity suit on November 13, 1985 against the State of Maryland Deposit Insurance Fund Corporation ("MDIF"), the Chevy Chase Savings and Loan, Inc. ("Chevy Chase"), Frank Saul, Frederick Dewberry, who is Maryland's Secretary of Licensing and Regulation, and the Maryland Savings Share Insurance Corporation ("MSSIC") for negligence, fraud, intentional interference with business relationships, business libel, and breach of fiduciary duty. LCC subsequently withdrew from the lawsuit. Rule 41(a), Fed. R. Civ. P. Levitt seeks damages of no less than $100,000.000. Defendants now move to dismiss the Complaint on the basis of lack of subject-matter jurisdiction, lack of personal jurisdiction, and abstention. Rule 12(b)(1),(2), Fed. R. Civ. P. Alternatively, defendants seek a transfer of this action to the United States District Court for the District of Maryland. 28 U.S.C. § 1404. Both sides have moved for sanctions pursuant to Rule 11. By an Order of this Court, all discovery was stayed pending disposition of the cross-motions.


 This lawsuit is one aspect of the extensive litigation that followed the highly publicized Maryland savings bank crisis in the summer of 1985. In 1984, Levitt, who is a real estate developer, approached the management of a Maryland thrift institution, the Old Court Savings and Loan, Inc. ("Old Court"), in order to obtain financing for a projected Florida real estate venture. After some negotiation, a partnership agreement *fn1" was entered into among various parties that, among other things, obligated Old Court to advance funds for the Florida project. Old Court's mismanagement and financial weakness, which led to Old Court being placed in conservatorship on May 13, 1985, *fn2" cast considerable doubt on the future of the project. Levitt, who had already experienced difficulty in obtaining cash advances from Old Court before the conservatorship, encountered more resistance as MDIF, Old Court's conservator, began to examine the partnership agreement in detail. Levitt attempted to meet with MDIF and state officials in an effort to procure additional funding, but these labors were without success as on September 20, 1985, MDIF, OCIC, and OCJV sued Levitt, LCC, and the partnership in the Circuit Court of Baltimore City for a judicial dissolution of the partnership and an accounting. In that lawsuit (the "Maryland Action"), which is apparently near trial, the Complaint alleges breach of contract and breach of fiduciary duty.


 In this action, defendants have moved to dismiss the Complaint. They contend first that the Court lacks subject-matter jurisdiction on two grounds: (a) defendants are not "citizens" within the meaning of 28 U.S.C. § 1332; and (b) the Eleventh Amendment bars a suit for damages against defendants, all of whom are part of the State of Maryland. Defendants contend second that there is no basis under New York law for the exercise of in personam jurisdiction over any of the defendants. N.Y. Civ. Prac. L. §§ 301-02 (McKinney's 1986). Third, defendants argue that the Court should abstain from exercising jurisdiction under either Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S. Ct. 1236, 47 L. Ed. 2d 483 (1976) or Burford v. Sun Oil, 319 U.S. 315, 63 S. Ct. 1098, 87 L. Ed. 1424 (1943). Fourth, defendants propose that in the event the lawsuit is not dismissed outright, it should be transferred to the District of Maryland. 28 U.S.C. § 1404(a). Finally, defendants contend fifth that sanctions should be imposed upon plaintiff's counsel because of the multiple fatal defects in the Complaint. Rule 11, Fed. R. Civ. P. Simultaneously, Levitt has cross-moved for sanctions. The essence of Levitt's cross-motion for sanctions is that the conduct of defendants and their counsel, including the filing of an obstructive motion to dismiss or transfer, merits the imposition of sanctions.


 The Court will first address defendants' challenge to this Court's subject-matter jurisdiction. *fn3" Under the Eleventh Amendment of the Constitution, the federal courts lack competence to entertain a suit for damages by a citizen against one of the fifty states. U.S. Const. amend. 11; Pennhurst State School and Hospital v. Halderman, 465 U.S. 89, 104 S. Ct. 900, 79 L. Ed. 2d 67 (1984); Ford Motor Company v. Department of Treasury, 323 U.S. 459, 65 S. Ct. 347, 89 L. Ed. 389 (1945). Although a state may not be named as a party, a suit is nonetheless barred if the state is the real party in interest and the recovery will be paid out of the state treasury. State Highway Commission of Wyoming v. Utah Construction Company, 278 U.S. 194, 49 S. Ct. 104, 73 L. Ed. 262 (1929); Dwyer v. Regan, 777 F.2d 825 (2d Cir. 1985). The issue in this case is whether any of the defendants should be treated as an arm of the state for the purposes of the Eleventh Amendment. *fn4" Mount Healthy City School See, e.g., S.J. Groves & Sons, Inc. v. New Jersey Turnpike Authority, 268 F. Supp. 568 (D.N.J. 1967); Zeidner v. Wulforst, 197 F. Supp. 23 (E.D.N.Y. 1961). These citations are, however, distinguishable on the facts. In those cases, state highway authorities were not financed out of the state treasury but raised revenue through tolls and the issuance of bonds. Despite the state's obligation to back the highway bonds, the defendants were not an alter ego of the state because there was no showing that the highway authority was unable to meet its obligations. E.g., Zeicher, 197 F. Supp. at 25. By contrast, it is clear in this case that MDIF is unable to meet all of the financial obligations out of its own funds and must look to the state treasury to make up the shortfalls. Indeed, in the midst of the Maryland crisis, the Maryland State Legislature agreed to hold harmless all depositors and, in effect, guarantee all the deposits. Office of Special Counsel, Report on the Savings and Loan Crises 453 (1986); Maryland's Governor announced that $100 million would be loaned to MDIF from the state treasury to protect depositors. MDIF, Questions and Answers, Old Court Savings & Loan, Inc. 3 (Jan. 22, 1986)(Exhibit GG to defendants' papers in opposition).

 In follows, therefore, that MSSIC, MDIF's now-defunct predecessor, is also immune from suit in federal court. Relying on United States v. The Maryland Savings Share Insurance Corporation, 400 U.S. 4, 91 S. Ct. 16, 27 L. Ed. 2d 4 (1970), Levitt maintains, however, that MSSIC is not instrumentality of the State. 400 U.S. at 7 n.2, 91 S. Ct. at 18 n.2. This citation is inapposite. First, in that case the Supreme Court did not address the question of MSSIC's status in the context of the Eleventh Amendment. Second, all of the functions of the MSSIC have been taken over by MDIF, an entity that is an arm of the State.

 Frederick Dewberry, who is sued here as Maryland's Secretary of Licensing and Regulation, is also immune. Suits against state officials are barred by the Eleventh Amendment insofar as the lawsuit is actually against the state itself. Edelman v. Jordan, 415 U.S. 651, 94 S. Ct. 1347, 39 L. Ed. 2d 662 (1974). Here the plaintiff's only claims are those brought under state law. There is no request for prospective injunctive relief and no allegation that federal law was violated. Nor is this a situation where the damages are ancillary to the main relief sought because damages are the only remedy sought by plaintiff. Therefore, the claims against Dewberry are barred by the Eleventh Amendment. Quern v. Jordan, 440 U.S. 332, 99 S. Ct. 1139, 59 L. Ed. 2d 358 (1979).

 It is a very different matter, however, with respect to defendants Chevy Chase and Frank Saul, Chevy Chase's President and sole stockholder. By way of background, on June 7, 1985, Chevy Chase was designated manager of Old Court by Judge Kaplan of Baltimore City Circuit Court and charged primarily with the responsibility of evaluating Old Court's assets and liabilities. Chevy Chase was to be paid for its labors and the State of Maryland agreed to indemnify Chevy Chase and its agents for any claims arising out of its role as manager. The arrangement lasted until December of 1985 when Chevy Chase became a consultant to MDIF.

 If there is any basis upon which Chevy Chase and Saul are immune from suit under the Eleventh Amendment, it is the order of Judge Kaplan making Chevy Chase a temporary employee of MDIF and indemnifying it for its acts. Chevy Chase and Saul argue that any suit for damages is, in effect, a suit against the State of Maryland because a recovery would be paid out of the state treasury. Levitt contends that so long as MDIF is not an arm of the State, MDIF's employee cannot be an arm of the State.

 After a careful examination of the relationship between Chevy Chase and MDIF, the Court concludes that Chevy Chevy is not an "arm" or "alter ego" of the State of Maryland. Chevy Chase is a private savings bank that was, in effect, hired temporarily by MDIF for its banking and management expertise. In an effort to keep Old Court operating in the midst of conservatorship, Judge Kaplan appointed Chevy Chase to manage Old Court on a day-to-day basis and act as a consultant on the future disposition of Old Court's assets. Chevy Chase was to analyze Old Court's assets and liabilities, but all major policy matters were explicitly reserved by Judge Kaplan to MDIF as Old Court's conservator and receiver. The terms of Judge Kaplan's order specifically limited the duration of Chevy Chase's position to thirty days unless extended by a further order of the court. Chevy Chase is not a state agency, its officers are not chosen by state officials, and it has no public borrowing authority. Its employees are not, in any sense, public servants and its funds are not deposited into the state treasury. As the manager of Old ...

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