There was a legal maxim in England during the Middle Ages that “The King can do no wrong.” That ancient doctrine has come down to us today as the concept of “Sovereign Immunity,” that a sovereign government cannot be sued for its acts or wrongdoing, unless it consents to such suits. Many states in this country today have a Tort Claims Act that allows plaintiffs to recover damages against that State.
On March 4, the Supreme Court of the United States set limits on Sovereign Immunity by consolidating two cases where New Jersey Transit (NJT) was the defendant. The Court’s case is captioned Galette v. New Jersey Transit Corporation, 607U.S. ___ (2026) (Slip Op.). The plaintiffs in both cases were injured in accidents involving NJ Transit buses, and both occurred in states other than New Jersey. Cedric Galette was injured in an accident in Philadelphia when the automobile in which he was riding was struck by an NJT bus on Market Street. The Court consolidated his case with that of a New York plaintiff, Jeffrey Colt, who was crossing a street in Midtown Manhattan when he was knocked down by an NJT bus and injured.
The Court of Appeals of New York (equivalent to the Supreme Courts of other states) in Colt’s case held that NJT was not “an arm of New Jersey” and therefore could be sued. The Supreme Court of Pennsylvania held in Galette’s case that NJT was an arm of the State, which was not subject to suit, and dismissed Galette’s action. As the Court opinion noted, the states used different criteria for determining whether a state agency could assert the defense of Sovereign Immunity, which is an absolute defense.
When the highest courts of different states (or different Circuit Courts of Appeals in the Federal Court system) differ on legal results in cases with similar facts, it is up to the SCOTUS to resolve the differences, usually by deciding to agree with only one of the lower courts. That happened in the present case, and the Court clarified the differences between an “arm of the State” that can assert the Sovereign Immunity defense, and a different type of state agency that can be sued.
Justice Sonia Sotomayor delivered the opinion for a unanimous Court. She began by saying: “States are generally entitled to immunity from being sued in another State’s courts without their consent. That sovereign immunity is personal to the State and thus extends only to arms of the State itself, not to legally independent entities that the State creates.” She then summarized the cases: “This pair of cases arises out of two accidents, one in New York City and one in Philadelphia, in which New Jersey Transit buses struck and injured people. Both victims sued New Jersey Transit, a corporation created by the New Jersey Legislature, in their respective home courts in New York and Pennsylvania. The highest courts in those States diverged as to whether New Jersey Transit is an arm of New Jersey. The Court granted certiorari to resolve whether New Jersey Transit is an arm of New Jersey and thus entitled to the State’s sovereign immunity. It is not. Accordingly, the judgment of the New York Court of Appeals is affirmed, and the judgment of the Pennsylvania Supreme Court is reversed.”
Thus, NJT became an example of the sort of agency where the State exercises a great deal of control. But the question is whether the agency at issue is controlled directly by the State or has enough independent authority that it can be considered an entity separate from the State itself and, therefore, it can be sued. Early in the Court’s opinion, Sotomayor described NJT’s structure since it was founded: “The Legislature in 1979 created the New Jersey Transit Corporation (NJ Transit). The State structured the entity as a ‘body corporate and politic with corporate succession.’ The ‘corporation’ was ‘constituted as an instrumentality of the State exercising public and essential governmental functions.’ It was ‘allocated within the Department of Transportation,’ but ‘the corporation’ was ‘independent of any supervision or control by the department or by any body or officer thereof’” (citations omitted). The opinion then described the “significant authority” that NJT has, as described by its enabling statute: “For instance, it has the power to: make its own bylaws; 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. Moreover, NJ Transit’s organic statute provides that ‘[n]o 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.’ It also states that ‘[a]ll expenses incurred by the corporation . . . shall be payable from funds available to the corporation’ and that ‘no liability or obligation shall be incurred by the corporation beyond the extent to which moneys are available’” (citations omitted).
The opinion then described the powers and authority that the State had granted to NJT by statute and described the facts of the two cases at issue. That included an analysis of how the New York and Pennsylvania Courts examined the status of NJT as a State agency, which resulted in the New York Court holding that it is not an “arm of the State” and the Pennsylvania Court holding that it is.
The next topic was the development of doctrine of Sovereign Immunity, where the Opinion said: “Sovereign immunity, however, is ‘personal’ to the State itself. It does not extend to ‘lesser entities,’ such as ‘municipal corporation[s] or other governmental entit[ies]’ that are not ‘arm[s] of the State.’ Whether an entity is ‘an arm of the State . . . is a question of federal law’ that ‘can be answered only after considering the provisions of state law that define the agency’s character’” (citation omitted). The opinion then developed the history of the doctrine, including citing cases that were decided more than 100 years ago. Citing an 1890 case, the Court said: “The Court applied the same reasoning to cities and counties that were created as municipal corporations. The Court explained that the corporate form of such entities, which included the power to ‘sue and be sued,’ likewise made them legal persons separate from the sovereign and thus not entitled to share in the State’s sovereign immunity” (citation omitted). More recently, as the opinion said: “the analysis remained focused on discerning whether the State had structured the entity to be legally separate, and corporate status remained central to that analysis.”
The Court went on to use counties as an example of how a political subdivision is not an arm of the State, citing Moore v. Alemeda County, 411 U.S. 693, 719, 720-21: “It explained that the county was also created as a ‘body corporate and politic,’ which meant, ‘[m]ost notably,’ that the county was given ‘corporate powers,’ such as the ability to ‘sue and be sued,’ to ‘deal in property,’ and to make contract[s].’ Financially, moreover, the county alone would be ‘liable for all judgments against it’ and could issue bonds without creating an ‘obligation on the part of the State.’ Finally, the Court observed that, given the county’s corporate status, the California Supreme Court had held that counties could be sued by the State.’ The Court thus concluded that the county was not an arm of the State because the county had a ‘sufficiently independent corporate character’” (citations omitted). The opinion then examined the status of counties in Mount Healthy City School District v. Doyle, 429 U.S. 274, 280-81 (1977): “Resting on the firmly established rule that municipal corporations and counties are not arms of the State, the Court in Mt. Healthy City Bd. of Ed. v. Doyle, 429 U.S. 274 (1977), framed the arm-of-the-State inquiry as asking whether an entity is ‘more like a county or city’ than ‘like an arm of the State.” Id., at 280. In answering that question for the entity at issue, a local school board, the Court examined the characteristics of the board under state law. It observed that the board was created as a ‘political subdivision’ distinct from the ‘State,’ that it had powers to issue bonds and levy taxes, and that it received money and guidance from the State. Those characteristics led the Court to conclude that the board was ‘more like a county or city’ and thus not entitled to immunity. Id., at 280–281.”
The opinion also cited Hess v. Port Authority Trans-Hudson Corporation, 513 U.S. 30 (1994) (regarding the entity that operates PATH trains between Manhattan and New Jersey), saying: “The Court acknowledged that the States exerted significant control over the Authority—they had appointment and removal power over the commissioners, the Governors could veto the Authority’s actions, and the States’ legislatures could determine what projects the Authority would pursue—but rejected control as a ‘dispositive; factor in its overall analysis. Id., at 47-48. In the end, after considering the above facts and the underlying purposes of sovereign immunity, the Court concluded that the Authority’s status as a ‘discrete entity’ that ‘generates its own revenues’ and ‘pays its own debts’ ultimately rendered it not an arm of the State. Id., at 52.”
The next section of the opinion began with a summary: “Although the Court’s arm-of-the-State cases have accounted for various considerations over time, those precedents have consistently, and predominantly, examined whether the State structured the entity as a legally separate entity liable for its own judgments.” It continued: “The clearest evidence that a State has created a legally separate entity is that it created a corporation with the traditional corporate powers to sue and be sued, hold property, make contracts, and incur debt.” Further, “The corporate form is particularly salient because it has “long [been] settled as a matter of American corporate law that separately incorporated organizations are separate legal units with distinct legal rights and obligations. … “[s]eparate legal personality has been described as ‘an almost indispensable aspect of the public corporation’” (citations omitted). The analysis continued: “In fact, a State might choose to create a corporation, rather than an unincorporated government agency, precisely because of its independent legal status. This move allows the State to distance the entity from burdens that apply to the State itself or to distance the State from the burdens that the corporate entity may incur.”
Sotomayor’s opinion then focused on reasons why a State would want to form a separate entity, rather than act directly. An example is when a state does not want to assume risk concerning a project, so the agency, as a separate entity would act as the contracting party, rather than the State itself. The lengthy analysis is beyond the purview of this report, but the Court said: “In fact, this Court has never once found a corporation that was liable for its own judgments to be an arm of the State, even when the State had significant control over the entity.” An exception to the rule is when the State is the “real party at interest” but the “real party at interest” analysis is different from the “arm of the State” analysis, such as when an official acting on behalf of the State is the named party, or when a suit would run against the interests of the State itself. The opinion concluded on that issue: “Under the principles articulated above, NJ Transit is not an arm of New Jersey.”
NJT’s enabling statute calls the agency “an instrumentality of the State,” but the Court said: “The term ‘instrumentality,’ however, lacks the historical weight the corporate form does and says little about whether an entity is an arm of the State.” The Court added: “Moreover, other aspects of New Jersey law undercut any inference that the term ‘instrumentality’ favors NJ Transit’s position. The New Jersey Tort Claims Act, for instance, excludes entities with sue-and-be-sued authority, like NJ Transit, from its definition of the ‘State.’ §§59:1-1, 59:1-3 (2026). The New Jersey Contractual Liability Act also specifies that entities with sue-and-be-sued authority are not part of the State. §59:13–2. All told, NJ Transit is therefore structured as a legally separate entity under state law.” The opinion also noted that the State is not formally liable for NJT’s debts or liabilities, and that, despite the level of State control over the agency, “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.”
NJ Transit argued in its Brief (at 22) that the agency is serving “public and essential governmental functions” and possesses “substantial plenary public powers,” such as the power to operate a police force, exercise eminent domain power, and promulgate regulations. The Court’s response was: “The arm-of-the-State analysis, however, focuses not on whether the entity serves public functions, but rather on whether the State has chosen to serve those public functions through its own apparatus or through that of a legally separate entity. That is why the Court has long recognized that cities and counties are not arms of the State despite serving public functions and exercising police powers.”
The Court’s opinion included a level of detail beyond what we could present in this article (it would be more appropriate for a Law Review article, which can require hundreds of hours of effort), but it also included an example of inconsistency in State control: “Hinging an entity’s arm-of-the-State status to the practical realities of state funding also risks arbitrary distinctions and inconsistent treatment of the same entity. These cases illustrate the problem: In the [past] 35 years, New Jersey’s funding of NJ Transit’s annual operating budget has oscillated anywhere from 15% to 46% of the budget. (Brief for NJ Transit, at 35.) Although NJ Transit maintains that it is and has always been an arm of New Jersey, it offers no meaningful way to decide how much funding is enough to prove it is ‘financially integrated with the State and financially dependent on it.’ Id., at 34. The more apt question instead is whether the State would be formally obligated to pay the entity’s judgments” (citation omitted).
The opinion noted that 23 states had urged the Court to accept a State’s own characterization of its agencies as dispositive, but the Court declined to do that, opting instead for a national standard: “One problem with the States’ position 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.” As the Court also noted: “To the extent New Jersey, and other States, created such corporate entities intending that they would remain part of the State and that the State would formally assume their liabilities, the States are always free to amend their laws.” The Court concluded: “NJ Transit is not an arm of New Jersey and thus is not entitled to share in New Jersey’s interstate sovereign immunity. The judgment of the New York Court of Appeals is affirmed, the judgment of the Pennsylvania Supreme Court is reversed, and the cases are remanded for further proceedings not inconsistent with this opinion.”
Sotomayor’s discussion of the issues was thorough, and her opinion for a unanimous Court appers to settle the issue of which components of the government of a State are protected by Sovereign Immunity and which are not.
For its part, NJT did not issue a press release concerning the Court’s ruling, but an agency spokesperson told Railway Age: “We have received the Court’s decision and are reviewing the opinion to assess its implications and will evaluate our next steps. We respect the Court’s ruling and will take appropriate actions in accordance with the opinion.”
Companion Commentary
What does this mean for transit providers and similar State agencies?
It is now time for this writer to “change hats” metaphorically and comment in a personal capacity, as a supplement to the description of the Court’s opinion. This commentary stems in part from this writer’s long experience dealing with NJ Transit as an advocate for the agency’s riders, particularly on its rail lines, and as a member of one of the agency’s advisory committees. It is purely coincidental that the cases before the Court happened to concern this writer’s home transit provider. There might be some fortuity in that, because other commentators would not be as familiar with NJT as an agency.
There are some facts that were not discussed in the Court’s opinion. That is not to imply that the Court was not thorough in its analysis of the legal issues, or that Justice Sotomayor did not make the Court’s position clear. The Court did not need to discuss them, but they add some useful background for decision-makers considering where transit providers and other State agencies fit into a State’s governmental picture.
NJT itself was founded in 1979 to assume the operations of a failing bus company, Transport of New Jersey, as successor to Public Service Coordinated Transport, which followed the historic structure of an electric utility also operating streetcars within its service area. NJ Transit Rail was not established until 1983, after Congress relieved Conrail of its obligation to operate local passenger trains in the Northeast Region of the country. Politics and political necessity played a role in these events, as it always does when State government is concerned. We have reported on these historic events: the 40th anniversary of the founding of NJT as a corporate entity and the 40th anniversary of the establishment of NJT Rail at the beginning of 1983. The latter coincided with the 40th anniversaries of SEPTA Regional Rail and Metro-North.
Before NJT Rail was founded, Conrail operated the trains in New Jersey. Before Conrail was founded in 1976, Penn Central (successor to the Pennsylvania Railroad), the Erie-Lackawanna (formed by a merger of those two railroads in 1960) and the Central Railroad of New Jersey ran the trains directly. The Commuter Operating Agency (COA), a sub-agency within the New Jersey Department of Transportation (NJDOT) assisted and subsidized the railroads, but the State did not engage in operating the trains until NJ Transit Rail was formed to take over from Conrail. Presumably, NJDOT could have operated the trains directly through the COA, but declined to pursue that alternative, and chose instead to add a railroad component to NJT under its previously established corporate identity.
NJT has its own legal department, headed by a General Counsel. This writer has dealt with NJT staff attorneys during the past several years on matters unrelated to the subject matter of this article. Still, the present case was argued not by NJT’s lawyers, but by the Solicitor General of New Jersey. It is clear, at least to this writer, that the State argued the case to demonstrate its contention that NJT has acted as an “arm of the State,” an understandable strategy under the circumstances. That distinction apparently did not make a difference to the Court. As the opinion said: “NJ Transit … 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. This Court has not previously found a similarly structured corporation to be an arm of the State.”
Given the Court’s newly articulated standard for determining which State agencies will be immune from suit from now on, it is essential that decision-makers at the State level draft statutes and administrative regulations to avoid creating quasi-independent agencies with their own corporate identities if they wish to immunize those agencies from claims that potential plaintiffs could assert. The Court’s opinion clarified the distinction between an “arm of the State” and an agency with independent identity, such as NJ Transit. Other transit agencies, such as New York’s Metropolitan Transportation Authority (MTA) are also instruments of the State, and it appears that the states have generally chosen corporate identities, rather than direct “arm of the State” identities for transit providers and other agencies. As the Court made clear, there are tradeoffs between the benefit of immunity from suit and the benefits of the quasi-independent corporate form for State agencies, including transit providers.
The Court has also clarified the distinction between State agencies and those operated by subdivisions of the state, including counties and municipalities. It is now clear that county and municipal agencies are not State agencies. This writer is familiar with an instance in New Jersey where County-level officials have claimed to be included in an organization as representatives of a State agency, a bootstrapping effort that the Court now clearly appears to disfavor.
So, it appears that the Court has clarified rules for how states and their agencies must proceed in the future. The decision might not affect how transit is operated in practice, but it puts officials on notice that Sovereign Immunity is available only for agencies whose connection to the State is a direct one.
David Peter Alan has been reporting on passenger trains and rail transit in the United States and Canada since 2004. A long-time passenger rail advocate, he came to reporting after gaining two decades of advocacy experience. He is a member and has previously served as Chair of the Senior Citizens and Disabled Residents Transportation Advisory Committee (SCDRTAC) at New Jersey Transit, the Lackawanna Coalition (which concentrates on New Jersey), and the Essex County (New Jersey) Transportation Advisory Board. Nationally, he belongs to the Rail Users’ Network (RUN) and has been a member of its Board of Directors since 2005. Admitted to the New Jersey and New York Bars in 1981, he is a member of the U.S. Supreme Court Bar and a Registered Patent Attorney specializing in intellectual property and business law. Alan holds a B.S. in Biology from Massachusetts Institute of Technology (1970); M.S. in Management Science (M.B.A.) from M.I.T. Sloan School of Management (1971); M.Phil. from Columbia University (1976); and a J.D. from Rutgers Law School (1981). He has ridden the entire Amtrak and VIA Rail networks and nearly all rail transit in the United States and Canada.
