The US Supreme Court has taken up a critical pair of cases that could redefine the legal framework governing state-run transportation agencies that operate beyond their home state boundaries. On Thursday, the court agreed to hear these consolidated cases which specifically question whether the New Jersey Transit Corporation (NJ Transit) is to be considered an “arm of the state” and thus entitled to sovereign immunity when sued outside New Jersey. This development could have far-reaching implications for similar agencies across the United States.
Central to this issue are conflicting decisions from the highest courts in New York and Pennsylvania. The New York Court of Appeals determined that NJ Transit could be sued in its jurisdiction, while the Pennsylvania Supreme Court concluded that the agency is shielded by interstate sovereign immunity. This inconsistency has prompted NJ Transit to label the situation as “untenable,” arguing that its legal liability should not vary based on geographic boundaries.
This legal conundrum gains complexity in light of the Supreme Court’s 2019 decision in Franchise Tax Board v. Hyatt, which reinvigorated the doctrine of interstate sovereign immunity. Traditionally, sovereign immunity has protected states from lawsuits brought in the courts of other states. However, the precise extent to which this immunity applies to state-created entities remains unsettled, creating uncertainty for similar agencies nationwide.
Lower courts have traditionally grappled with this dilemma by employing a multi-factor test to ascertain whether an entity truly functions as an arm of the state. Factors considered include the financial liability of the state treasury for any judgments, the degree of state control over the entity, and how the state defines the agency’s role.
The forthcoming decision from the Supreme Court, expected after oral arguments in the October 2025 term, could set an important national precedent. The ruling will potentially determine the parameters of sovereign immunity applicable to state-created agencies engaging in cross-border operations, with a decision anticipated by June 2026. Legal practitioners and state-operated agencies across the country eagerly await this outcome, which could influence operational liabilities and legal strategies moving forward.
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