Supreme Court

Supreme Court Rules New Jersey Transit Lacks Sovereign Immunity

John C. Lane

New Jersey Transit Corporation is a creation of the State of New Jersey. It operates bus and computer train services in New Jersey, New York, and Pennsylvania. When it is sued for personal injuries arising out of accidents, will NJ Transit have sovereign immunity as an arm of the State of New Jersey? That was the question before the Supreme Court of the United States, which held unanimously that NJ Transit is not an “arm of the State” and thus does not come under the umbrella of sovereign immunity. The case is Galette v. New Jersey Transit Corporation. But why is this issue before the Supreme Court?

That’s because the sovereign immunity of the several States is rooted in the Constitution. In a long line of Supreme Court decisions interpreting the immunity doctrine the Court has held that sovereign immunity is a right bestowed upon the States by the Constitution. It is personal to the State and is not shared by counties, municipalities, school boards, or even a bank created by the State. The issue is whether the state-created agency is so tied to the State, by control, finances, or other factors as to be considered an “arm of the State.” NJ Transit is not.

Two distinct lawsuits against NJ Transit reached the Supreme Court. Jeffrey Colt was injured when he was struck by a bus in midtown Manhattan. Cedric Galette was injured in Philadelphia when an NJ Transit bus crashed into a car in which he was a passenger. Both men sued NJ Transit in state courts in New York and Pennsylvania, respectively. NJ Transit pleaded that it is an “arm of the-state” and thus entitled to New Jersey’s sovereign immunity.

The New York Court of Appeals disagreed and ruled that Mr. Colt was free to pursue his tort action in the New York courts. The Supreme Court of Pennsylvania held the opposite, ruling that Mr. Galette’s suit was barred by New Jersey’s sovereign immunity because, it concluded, NJ Transit is an arm of the State. The constitutional issue, and the divide between New York and Pennsylvania’s highest courts brought the cases to the Supreme Court, where they were heard together. The Court undertook a thorough review of its legal precedents and the principles espoused, to analyze the relationship between the State and the New Jersey Transit Corporation.

NJ Transit is a “body corporate and politic with corporate succession.” It can sue and be sued, enter into contracts, acquire real or personal property, and make and alter bylaws. It can raise funds, establish its own operating divisions, adopt and maintain its own employee benefit programs, and even own or control any corporate entity that it acquires or forms to carry out its statutory objectives. Its organic statute labels NJ Transit as an “instrumentality of the State,” but that label lacks historical weight. Not all instrumentalities of a state may invoke sovereign immunity. Other New Jersey statutes dictate that a state entity that can sue and be sued is not “part of the State.” By law, NJ Transit is independent of any control by the State department of transportation. Moreover, the State of New Jersey is not liable for its debts.

Most important to the Court is that a state-created corporation that is formally liable for its own judgments is not an arm of the State. “NJ Transit is not an arm of New Jersey and thus is not entitled to share in New Jersey’s interstate sovereign immunity.”

Supreme Court to Handle Another Arbitration Dispute: Are Bakery-Product Delivery Drivers Transportation Workers or Bakery Workers?

John C. Lane

And why does it matter? Because if they are transportation workers, their putative class action under the FLSA must proceed in court, not by contracted-for arbitration. But if they are bakery workers, they must submit to arbitration. The Second Circuit held they are not transportation workers and therefore must submit to arbitration. The Supreme Court has agreed to hear the workers’ further appeal, in Bissonnette v. LePage Bakeries Park St., LLC.

Certainly Section 1 of the Federal Arbitration Act forbids a transportation worker, even an independent contractor, to be compelled to arbitrate a claim against an employer. That was settled by the Court in its 2019 decision in New Prime, Inc. v. Oliveira. The unusual setting in Bissonnette raises the issue for the Court of whether the workers are transportation workers or, perhaps, bakery workers.

The workers entered into distributor agreements with defendant bakery companies. In a putative class action, they alleged they were misclassified as independent contractors rather than employees, in violation of the FLSA and Connecticut law, seeking reclassification and damages. The bakery defendants moved to compel arbitration under a contractual provision that also excluded class or other representative actions. But what was their job?

Under the agreements, plaintiffs purchased their own service territories, identified new customers, developed relationships with existing customers, ordered and delivered products, stocked and replenished products in customers’ locations, and otherwise promoted sales and customer service. Plaintiffs purchased bakery goods from defendants and sold them to the customers at a profit, which they kept.  They increased profits by increasing business. The goods came from outside Connecticut and were transported by the workers to their final destinations in Connecticut, using their own vehicles.

Plaintiffs claimed they were transportation workers, transporting bakery products on the intrastate leg of interstate commerce. In contrast, the bakery companies focused on the business aspect of the work, to say that plaintiffs are not transportation workers because their primary activities are in the bakery industry, not the transportation industry. They are more akin to sales workers or managers responsible for all aspects of a bakery products distribution business. Thus, they argue, the Section 1 exception is no impediment to the application of the full Federal Arbitration Act.

The Connecticut district court agreed with the defendant bakeries, ordering the workers to arbitration. The Second Circuit affirmed. The Supreme Court recently granted certiorari to decide whether these distributors of bakery products are in the bakery industry or the transportation industry. And that determination will decide whether their employment claims will be resolved in court or in arbitration.