Key Points

  • Supreme Court holds NJ Transit is not an arm of New Jersey and cannot claim the state's sovereign immunity in out-of-state suits, resolving a split between the New York Court of Appeals and Pennsylvania Supreme Court.
  • The Court narrows the arm-of-the-state test to two core factors: whether the entity was structured as a legally separate corporation and whether the state bears formal liability for its judgments.
  • State control over appointments, vetoes, and eminent-domain decisions, along with NJ Transit's $832 million in FY2024 operating revenue and fluctuating state subsidies, did not alter the outcome.
  • The Court rejected a bid by 23 amici states to make a state's own statutory labeling of an entity dispositive of arm-of-the-state status.

The Supreme Court held that New Jersey Transit Corporation is not an arm of New Jersey and therefore cannot claim the state's sovereign immunity in lawsuits filed in other states' courts. The decision, issued in Galette v. New Jersey Transit Corp., resolves a split between the Pennsylvania Supreme Court and the New York Court of Appeals over whether the transit agency shares in the state's constitutional immunity from suit.

The case arose from two accidents involving NJ Transit buses: one in Midtown Manhattan and one in Philadelphia. Both injured plaintiffs sued in their home states' courts, and NJ Transit moved to dismiss both suits, asserting arm-of-the-state immunity. The Pennsylvania Supreme Court agreed, applying a six-factor test and dismissing the Philadelphia suit. The New York Court of Appeals reached the opposite conclusion under its own three-factor framework, allowing the Manhattan case to proceed. The Supreme Court granted certiorari, consolidated the cases, and resolved the conflict.

New Jersey created NJ Transit by statute in 1979 as a "body corporate and politic with corporate succession," granting it authority to sue and be sued, make contracts, acquire property, and exercise eminent domain. The statute also provides that no debt or liability of the corporation shall be deemed or construed to create or constitute a debt, liability, or a loan or pledge of the credit of the State. That combination of corporate structure and formal fiscal separation from the state treasury became decisive.

The Court affirmed the New York Court of Appeals' judgment, reversed the Pennsylvania Supreme Court's judgment, and remanded both cases for further proceedings.

In doing so, the Court trimmed the sprawling multifactor tests that federal circuits and state high courts had developed over decades, redirecting the arm-of-the-state inquiry to two anchoring questions: whether the state structured the entity as a legally separate corporation, and whether the state is formally liable for the entity's judgments.

Sovereign immunity, however, is "'personal'" to the State itself.

That single-sentence holding, drawn from the opinion's discussion of immunity's scope, framed the rest of the analysis. The Court treated an entity's corporate form -- particularly a sue-and-be-sued clause -- as the clearest signal that a state intended to create a legally separate entity distinct from itself, rather than an extension of the state's own sovereign character.

The Court was equally emphatic about what does not move the needle. Gubernatorial appointment and removal power over NJ Transit's board, a veto over board actions, and legislative veto rights over some eminent-domain decisions were not enough to override the corporate and fiscal separateness Trenton had otherwise built into the statute.

This level of control does not meaningfully affect NJ Transit's status, given the fact that it is a legally separate corporation and is responsible for its own judgments.

The Court likewise declined to weigh NJ Transit's practical financial relationship with the state -- including its degree of state subsidy -- as part of the immunity analysis. According to the agency's own financial reporting cited in the litigation, NJ Transit generated $832 million in operating revenues for the fiscal year ended June 30, 2024, even as state appropriations covering its operating budget have ranged from 15% to 46% over 35 years. The Court found that funding fluctuation ill-suited to a bright-line immunity rule, and it rejected an amici bid by 23 states to make a state's own statutory label -- such as calling an entity an "instrumentality of the State" -- dispositive.

For litigators representing or suing transit authorities, toll agencies, and other quasi-public corporations organized with sue-and-be-sued powers and independent revenue streams, the ruling sets a clearer, though narrower, roadmap: absent formal state liability for judgments, corporate status will generally defeat an immunity defense, regardless of how much day-to-day control a state legislature or governor retains.