Structure Over Labels: Supreme Court Rejects NJ Transit’s Sovereign Immunity Claim

This week, the U.S. Supreme Court issued a unanimous decision in Galette v. New Jersey Transit Corporation, 607 U.S. ___ (2026). The case addressed whether the New Jersey Transit Corporation (NJ Transit) is an “arm of the state” entitled to New Jersey’s sovereign immunity from lawsuits in other states. The Court said no, making it clear that NJ Transit must face negligence claims just like any other separate legal entity.

The litigation arose from two accidents in which NJ Transit buses struck pedestrians and vehicles in New York and Philadelphia. Jeffrey Colt and Cedric Galette sued for negligence in their home states. NJ Transit moved to dismiss, arguing it was an arm of the State of New Jersey and therefore immune under interstate sovereign immunity. The New York Court of Appeals allowed the suit to proceed, while the Pennsylvania Supreme Court dismissed it, creating a split. The Supreme Court of the United States granted certiorari and consolidated the cases.

Writing for a unanimous Court, Justice Sotomayor explained that the key question in any arm of the state analysis is whether the State structured the entity as part of itself or as legally independent. The Court focused on NJ Transit’s corporate structure and declined to treat it as an arm of the state. It emphasized that NJ Transit operates separately from the state treasury and was created as a “body corporate and politic” with authority to sue, be sued, and enter contracts.

Significantly, the Court refused to let a State’s own label be dispositive. While NJ Transit is called an instrumentality, that term lacks the historical weight of the corporate form and does not override its identity as an independent body corporate.

The Court acknowledged New Jersey’s “substantial control” through board appointments and gubernatorial veto power. It explained, however, that oversight alone does not transform a separate corporation into the State itself. The Court also rejected the “essential governmental functions” test, noting that public services often shift between private and government operation. NJ Transit’s rail and bus systems were once privately run before the State acquired them.

State funding was also rejected as a decisive factor. The Court warned that reliance on fluctuating subsidies would create arbitrary results. New Jersey’s support for NJ Transit has varied significantly over the past three decades, and those changes cannot determine whether the corporation is responsible for its own legal liabilities.

The Court further clarified that the arm of the state doctrine differs from the real party in interest doctrine. A case may still be barred when the State is the true party affected, such as when damages against an official would be paid from the state treasury. Because NJ Transit did not argue that New Jersey was the real party in interest, dismissal on that ground was unavailable.

The decision underscores a basic principle. When a State creates a separate corporation to distance itself from liability and debt, it cannot later claim sovereign immunity for that entity in court. The benefits and burdens of separate legal status come together.

For questions and more information on litigation involving state instrumentalities, please contact Partner Lawrence Bluestone, Esq. via email here or call 973.533.0777.