Supreme Court rules that New Jersey Transit can be sued in other states

The Supreme Court on Wednesday ruled in Galette v. New Jersey Transit Corporation that two men who were seriously injured in New York and Pennsylvania by buses operated by New Jersey Transit can sue the transit agency in those states. In a unanimous opinion by Justice Sonia Sotomayor, the justices held that New Jersey Transit is not an extension of the state of New Jersey and therefore does not share the state’s immunity from lawsuits.

The court’s decision came in a pair of cases, argued together in mid-January. One began after Jeffrey Colt was hit in 2017 by a New Jersey Transit bus while crossing a street in Manhattan. Another has its roots in a 2018 accident, in which a New Jersey Transit bus hit the car in which Cedric Galette was riding. Both men went to court – Colt in New York and Galette in Pennsylvania. New Jersey Transit argued in both cases that the lawsuits should be dismissed because it is an “arm” of New Jersey and therefore should benefit from the state’s sovereign immunity.

The New York Court of Appeals, that state’s highest court, rejected that contention and allowed Colt’s lawsuit to move forward. But the Pennsylvania Supreme Court sided with New Jersey and dismissed Galette’s case. Both Galette and New Jersey Transit went to the U.S. Supreme Court, which agreed to hear the cases last year.

On Wednesday, the Supreme Court ruled in favor of Colt and Galette, holding that New Jersey Transit is not an “arm” of the state and therefore can be sued in other states’ courts even without its consent. In making such a determination, Sotomayor explained, the Supreme Court’s cases “have consistently, and predominantly, examined whether the State structured the entity as a legally separate entity liable for its own judgments.” In particular, Sotomayor wrote, the court has considered whether the entity is a corporation “with the traditional corporate powers to sue and be sued, hold property, make contracts, and incur debt.”

These factors, Sotomayor said, lead to the conclusion that New Jersey Transit is not an “arm” of the state. New Jersey created it as a corporation with all of the normal powers of a corporation, along with the power to “‘[m]ake and alter bylaws,’ ‘[s]et and collect fares,’” and raise its own funds from “‘gifts, grants, or loans.’” And under state law, New Jersey cannot be held liable for any of the transit agency’s debts.

Sotomayor acknowledged that the law creating New Jersey Transit indicates that the agency is an “instrumentality of the state.” But that language, she said, cannot overcome the agency’s status as a corporation, which has long carried “historical weight” in determining whether an entity is an “arm” of the state.

Nor does the “substantial amount of control” that New Jersey exercises over the transit agency “change the overall conclusion here,” Sotomayor continued. She observed that (among other things) the state’s governor has the power to appoint and remove members of the New Jersey Transit board, as well as the power to veto the board’s actions. “On the other hand,” she wrote, “New Jersey law states that NJ Transit ‘shall be independent of any supervision or control by the [transportation] department or by any body or officer thereof,’ and requires that it ‘exercise independent judgment.’”

Sotomayor also rejected the suggestion, made by a group of states in a “friend of the court” brief, that the court should adopt a rule that gives “dispositive” weight to the state’s characterization of the entity – “such as New Jersey’s labeling of NJ Transit as an ‘instrumentality of the State.’” “One problem with” such a rule, Sotomayor reasoned, “is that it focuses on the label a State places on an entity, rather than assessing whether the State structured the entity as legally separate.” “Instead,” she concluded, “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.”