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GIBSON-HOMANS CO. v. NEW JERSEY TRANSIT CORP.

July 15, 1982

The GIBSON-HOMANS COMPANY
v.
NEW JERSEY TRANSIT CORPORATION, Consolidated Rail Corporation and New Jersey Department of Transportation


Gentlemen:

Plaintiff Gibson-Homans Company operates a manufacturing plant in Matawan, New Jersey located near defendant New Jersey Transit Corporation's ("New Jersey Transit") North Jersey Coast Line. Beginning in 1955, plaintiff received rail service to this plant by means of a rail freight siding running from the plant to the North Jersey Coast Line. Since 1970, this rail service has been provided by defendant Consolidated Rail Corporation ("Conrail"). As part of a program to improve the North Jersey Coast Line, defendant New Jersey Transit decided to remove that portion of the rail freight siding running to plaintiff's plant which traversed New Jersey Transit's right-of-way.

 On July 30, 1981, New Jersey Transit notified plaintiff that the rail siding would be removed on September 1, 1981. On August 31, 1981, plaintiff obtained an ex parte restraining order from the Superior Court of New Jersey, Law Division, Monmouth County prohibiting defendants from removing the siding. On September 4, 1981, the order was dissolved on defendants' motion and the rail siding was subsequently removed. *fn1"

 On December 8, 1981, plaintiff brought this action pursuant to 28 U.S.C. § 1332 seeking an order directing defendants New Jersey Transit and Conrail to relocate the rail freight siding so that rail service could continue to be provided to the Matawan plant. *fn2" Alternatively, plaintiff seeks an order directing defendants to negotiate with plaintiff on the issue of providing rail services to the plant. Finally, plaintiff seeks a declaration that defendants' actions constitute a taking under the New Jersey Eminent Domain Act, N.J.S.A. §§ 20:3-1 et seq., and an order requiring defendants to file a complaint in inverse condemnation.

 Defendant New Jersey Transit now moves to dismiss the action on the ground that diversity jurisdiction may not be properly asserted against it because it is the alter ego of the State of New Jersey and therefore not a citizen of a state for diversity purposes. *fn3" The Court has determined that the motion should be granted and that the action should be dismissed. *fn4"

 DISCUSSION

 It is well settled that an action brought against a state by a citizen of another state is not cognizable under 28 U.S.C. § 1332. Ramada Inns, Inc. v. Rosemount Memorial Park Assn., 598 F.2d 1303, 1306 (3d Cir.1979). Diversity jurisdiction is also lacking where suit is brought against an agency or instrumentality that is the alter ego of the state. Harris v. Pennsylvania Turnpike Commission, 410 F.2d 1332, 1333 n. 1 (3d Cir.1969), cert. denied, 396 U.S. 1005, 90 S. Ct. 558, 24 L. Ed. 2d 497 (1970). In determining whether or not New Jersey Transit is the alter ego of the State for diversity purposes, the Court must perform the same analysis required in order to determine whether New Jersey Transit is immune from suit under the Eleventh Amendment. Blake v. Kline, 612 F.2d 718, 726 & n. 16 (3d Cir.1979), cert. denied, 447 U.S. 921, 100 S. Ct. 3011, 65 L. Ed. 2d 1112 (1980).

 As set forth in Urbano v. Board of Managers of New Jersey State Prison, 415 F.2d 247, 250-51 (3d Cir.1969), cert. denied, 397 U.S. 948, 90 S. Ct. 967, 25 L. Ed. 2d 128 (1970) and Blake v. Kline, 612 F.2d at 722-26, this analysis is governed by the following factors: (1) how local law defines the status and nature of New Jersey Transit and its relation to the State of New Jersey; (2) whether payment of the judgment will be made from the state treasury or from New Jersey Transit's own funds; (3) whether New Jersey Transit is performing a governmental or proprietary function; (4) whether New Jersey Transit has been separately incorporated; (5) the degree of autonomy exercised by New Jersey Transit over its own operations; (6) whether New Jersey Transit has the power to sue and be sued and to enter into contracts; (7) whether New Jersey Transit's property is immune from state taxation; and (8) whether New Jersey has insulated itself from responsibility for New Jersey Transit's operations. The Third Circuit has indicated that the second and fifth factors are the most important, Id. at 723-725, see also Unified School District # 480 v. Epperson, 583 F.2d 1118, 1121-22 (10th Cir.1978), and has cautioned that "in a close case . . . evidence beyond the mere statutory language is required." Id. at 726. *fn5"

 New Jersey Transit was created by the New Jersey Public Transportation Act of 1979, L.1979, c. 150, codified at N.J.S.A. § 27:25-1 et seq., as the successor of the Commuter Operating Agency of the New Jersey Department of Transportation. It is "established in the Executive Branch of the State Government" as "a body corporate and politic with corporate succession," and is allocated within the Department of Transportation. N.J.S.A. § 27:25-4(a). The corporation is "constituted as an instrumentality of the State exercising public and essential governmental functions" and the exercise of its powers is "held to be an essential governmental function of the State." Id.

 The powers of the corporation are vested in a seven-member governing board consisting of the New Jersey Commissioner of Transportation, the State Treasurer and another member of the Executive Branch selected by the Governor, who sit ex officio, and four public members appointed by the Governor with the advice and consent of the Senate. N.J.S.A. § 27:25-4(b). The Commissioner of Transportation chairs the board and is given the power to review New Jersey Transit's expenditures and its proposed budget. N.J.S.A. § 27:25-20(a). The Legislature has declared, however, that the corporation is "independent of any supervision or control by the [Transportation] department or by any body or officer thereof." N.J.S.A. § 27:25-4(a). Board members may be removed from office by the Governor for cause, N.J.S.A. § 27:25-4(b), and the Governor has veto power over any action taken by the Board. N.J.S.A. § 27:25-4(f).

 New Jersey Transit has the power to sue and be sued, N.J.S.A. § 27:25-5(a); however, the New Jersey Tort Claims Act, N.J.S.A. §§ 59:1-1 et seq., and the New Jersey Contractual Liability Act, see N.J.S.A. § 27:25-19, are applicable to suits brought against it. Several statutory provisions give the corporation the power to enter into contracts. N.J.S.A. §§ 27:25-5(r), 25-5(v) & 25-6. The corporation may buy land, N.J.S.A. § 27:25-13, purchase and own capital stock and equipment, N.J.S.A. §§ 27:25-5(u) & 25-10, purchase and own real and personal property, N.J.S.A. § 27:25-5(j), and lease or sell its property, N.J.S.A. § 27:25-5(k); however, for tax purposes at least, all property owned by the corporation is deemed to be state property. N.J.S.A. § 27:25-16. The corporation has been given the power of eminent domain, N.J.S.A. § 27:25-13(a)-(c)(1).

 New Jersey Transit may collect fares from its operations, N.J.S.A. § 27:25-5(n), and may collect fees and rental charges from its properties, N.J.S.A. § 27:25-5(o). The corporation may also seek money from any federal, state or local agency or from any private source. N.J.S.A. § 27:25-5(g). The corporation is prohibited from incurring a deficit, N.J.S.A. § 27:25-17, or from issuing bonds. The State has explicitly disclaimed liability for any debts or liabilities of the corporation, id.; however, New Jersey Transit receives an annual appropriation from the New Jersey Legislature through the Department of Transportation. In Fiscal Year 1982, New Jersey Transit received an appropriation of $104 million from the legislature. L.1981, c. 190.

 New Jersey Transit may deposit its revenues in interest-bearing accounts or in the State of New Jersey Cash Management Fund. N.J.S.A. § 27:25-5(p). The Cash Management Fund is a common trust fund, established and maintained by the Director of the Division of Investment of the Department of the Treasury under the custodianship of the State Treasurer which serves as a legal depository for public monies. N.J.S.A. § 52:18A-90.4. Investment of the fund is subject to the limitations which govern investment of funds in the state treasury, id., and the fund may contain money that inures to the benefit of the General State Fund. N.J.S.A. § 52:18A-90.1. New Jersey Transit is exempt from state taxation. N.J.S.A. § 27:25-16.

 Labor relations between New Jersey Transit and its employees are governed by the New Jersey Employer-Employee Relations Act, N.J.S.A. § 34:13A-1 et seq., and are within the jurisdiction of the Public Employees Relations Commission. N.J.S.A. § 27:25-14(c). Labor disputes are to be resolved by arbitration; however, the "cost to the state of the first year portion of any arbitration award shall not exceed the appropriations permitted within the provisions of the 'State Expenditures Limitation Act.'" Id. The corporation must consult with state authorities in developing an employee compensation schedule, and must file the schedule with these authorities when it is completed. N.J.S.A. § 27:25-15. The corporation is subject to the provisions of the New Jersey Open Public Meetings Act, N.J.S.A. § 27:25-4(g), its records ...


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