U.S. Supreme Court
WASHINGTON – The U.S. Supreme Court has overturned a Pennsylvania ruling, forcing a New Jersey agency to defend itself in Philadelphia.
Two different state high courts felt differently on one issue – whether the New Jersey Transit Corporation is an “arm” of that state’s government and can only be sued there. While New York allowed one of its residents to sue in New York, the Pennsylvania Supreme Court said otherwise and told Philadelphian Cedric Galette had to go across state lines to sue over a traffic accident.
The U.S. Supreme Court on Wednesday disagreed with Pennsylvania’s justices, with Justice Sonia Sotomayor writing NJ Transit couldn’t show it is “financially integrated with the State and financially dependent on it.”
“NJ Transit, however, is a corporation that has all the hallmarks of separate legal personhood, such as the power to sue and be sued, make contracts, and hold property in its own name, which all indicate that it is not an arm of the State and does not share in its immunity from suit,” Sotomayor wrote.
“This Court has not previously found a similarly structured corporation to be an arm of the State.”
Galette was a passenger in a car driven by Julie McCrey in Philadelphia on Aug. 9, 2018. His lawsuit, which also names McCrey as a defendant, alleges a bus owned and operated by NJ Transit struck the car and caused him various injuries.
He filed suit in 2020 in Philadelphia, to which NJ Transit responded that it is an "arm" of the State of New Jersey. The trial judge and Superior Court subsequently rejected this argument.
The Pennsylvania Supreme Court last year examined the U.S. Supreme Court's 2019 ruling in Hyatt III, which involved the Franchise Tax Board of California facing suit in Nevada. The decision addressed interstate sovereign immunity and overturned precedent in place for the previous 40 years.
The 5-4 ruling held states have immunity from lawsuits filed in other states. NJ Transit also pointed at a Third Circuit ruling that concluded it is an arm of the State of New Jersey.
NJ Transit was established in 1979 by the New Jersey Public Transportation Act. The legislation said it was created to provide "efficient, coordinated, safe and responsive public transportation," and that "as a matter of public policy, it is the responsibility of the State to establish and provide for the operation and improvement of a coherent public transportation system in the most efficient and effective manner."
The New Jersey legislature called it "an instrumentality of the State" and said its operation is "an essential government function."
Calling it an “instrumentality” wasn’t strong enough language to afford NJ Transit sovereign immunity, the U.S. Supreme Court held, rejecting arguments put forth by 23 states in an amicus brief.
“There is no good reason to believe that the State intended for NJ Transit to be part of the State itself by using the word ‘instrumentality,’ when it simultaneously used the word ‘body corporate, a term traditionally understood to create a ‘separate legal personality,’” Sotomayor wrote.
“The States’ preferred test that any label a State chooses is dispositive therefore does not promote predictability in the treatment of state-created entities because it still requires courts to decide which state-law pronouncement is dispositive.
“Instead, what promotes consistency is adhering to a long line of cases in which this Court has found state-created corporations that are formally liable for their own judgments not to be arms of the States that created them.”
