FORGOTTEN HISTORY: When is a corporation also new jersey - Caught on Camera

The Supreme Court heard argument yesterday in Galette v. New Jersey Transit Corporation, a pair of consolidated cases asking whether the New Jersey Transit Corporation shares in the State of New Jersey's sovereign immunity. The plaintiffs, who were hit by N.J. Transit buses in Pennsylvania and in New York, argue no. Sovereign immunity is for sovereigns, and New Jersey deliberately created the Corporation as a separate legal person—with separate capacity to sue and be sued, separate wins and losses in court, and separate assets and liabilities.

Will Baude and I agree, as we wrote in an amicus brief: States retain the immunity from suit they had at the Founding, and that immunity extended to the sovereign States themselves, not to their political subdivisions or public corporations. But there were four questions that came up at argument that deserve further attention.

The first question is whether corporate separateness needs to be assessed de jure or de facto. As a matter of law, the Corporation has its own assets and liabilities, and a loss for the Corporation in court doesn't necessarily have any impact on the rights and obligations of the State of New Jersey. In practice, of course, New Jersey routinely subsidizes the Corporation and contributes to its budget. So if the Corporation has to pay Cedric Galette's medical bills after its bus hits Galette's car, that might eventually impose some minor burden on the state fisc. But whether an entity is amenable to judicial process and to being sued without its consent doesn't depend on whether a sovereign government will eventually choose to bail you out. Everyone agrees that New York City lacks sovereign immunity and is a separate legal person from New York State, even though NYC going bankrupt would be a major headache for New York's balance sheet; everyone agrees the "Greenspan put" or Fannie Mae's implicit government guarantee doesn't turn "too big to fail" banks and mortgage guarantors into sovereigns with immunity from suit. Another defendant here, N.J. Transit Bus Operations Inc. was created as a separate corporation even from N.J. Transit, with even less of an argument for immunity; yet if Bus Operations had to pay a plaintiff's medical bills, the fact that the Corporation might bail it out rather than give up on running buses wouldn't make subsidiary and parent the same legal person. (A de facto test might also create strange results in future cases, when the facto's might have changed. If NJ Transit ridership ​goes through the roof, turning it from a cost center into a major cash cow for New Jersey, will the courts then have to overrule any decisions finding the Corporation immune, depending on its budgetary prospects this year?)