Supreme Court Rules New Jersey Transit Is Not Entitled to Sovereign Immunity
A unanimous Supreme Court ruled yesterday that the New Jersey Transit Authority (“NJ Transit”) is not an arm of the State of New Jersey, it does not enjoy sovereign immunity, and it can be sued in courts of any state without its consent.
The Court identified the factors that drive the analysis. Most important is whether the entity was created as a corporation with the “traditional corporate powers to sue and be sued, hold property, make contracts, and incur debt.” Also critical is whether the entity is described as a separate legal entity under the relevant state’s laws or is liable for its own judgments. The Court characterized a factor that some lower courts previously relied on—the degree of control which the State exerts over the entity—as a secondary consideration that should be used with caution, noting that “gauging actual control” can be a “perilous” and “unreliable” inquiry.
Applying these factors to NJ Transit, the Court held that it is not an arm of the state of New Jersey. The Court noted that NJ Transit is “a body corporate and politic with corporate succession” under NJ state law and is explicitly referred to as a “corporation” in its founding legislation. Further, the State of New Jersey granted NJ Transit the traditional powers of a corporation: “to make its own by-laws; sue and be sued; enter into contracts; acquire or deal in and with real or personal property; raise funds from fares, gifts, grants, or loans; own and control any corporate entity acquired or formed to carry out its objectives; adopt rules and regulations as necessary; and exercise eminent domain powers.” Also relevant is the fact that NJ Transit’s debt is not debt of the State, and that any liability that the corporation incurred was its own (and thus was not attributable to or guaranteed by the State of New Jersey).
NJ Transit’s financial relationship with the State had less relevance because “a State cannot lose its sovereign immunity by ‘requir[ing] a third party to reimburse it’ (such as by buying insurance)” just the same as an entity cannot suddenly enjoy immunity “simply by a State agreeing to ‘pick up the tab’ (such as by choosing to indemnify the entity).” The Court recognized that the State of New Jersey exercised substantial control over NJ Transit—the Government has appointment removal powers; the State’s Commission of Transportation chairs the Board; and the Governor has veto power over Board action—but found that this level of control did not change the analysis, because NJ Transit is a legally separate corporation responsible for its own liabilities. All told, the Court made clear its reluctance to rely on the factual idiosyncrasies of an entity’s particular relationship with the state, given that such reliance risks “arbitrary distinctions and inconsistent treatment of the same entity.”
The fact that NJ Transit was created to serve “public and essential governmental functions” likewise did not alter the analysis because the relevant question is whether NJ Transit was created to do so as an extension of the state or as a separate legal entity. Finally, the Court expressly rejected the request of amicus States to adopt a brightline rule that the analysis should turn on how a State characterizes the entity because an entity may be characterized multiple ways depending on the circumstances, which would not promote predictability or consistent outcomes.
Galette v. New Jersey Transit Corp. provides some clarity to State-adjacent entities when assessing whether they are entitled to immunity. Courts will look primarily to the formal legal structure of the entity, whether it holds traditional corporate powers, and how the entity is described under state law. The degree of practical control the State exercises over the entity is not irrelevant, but it plays a secondary role in the analysis.