WASHINGTON - One of the first actions of the U.S. Supreme Court in the 1994-95 term that begins today will be to hear arguments on whether the Port Authority of New York and New Jersey is immune from suits in federal court.
The case, which is of major importance to state governments, raises the issue of whether sovereign immunity under the Constitution's 11th Amendment applies to Port Authority Trans-Hudson Corp., known as PATH, a rail-road subsidiary of the bistate port authority.
The justices in their decision could set forth general principles to be applied by lower courts in determining whether any state agency - including authorities that issue municipal bonds - is an arm of the state and therefore entitled to sovereign immunity.
The justices also are expected to decide which of about 1,700 petitions for review they will consider. Many of the petitions raise issues of importance to state and local governments and the municipal bond market.
The court already is slated to hear a number of cases with major implications for states' rights and securities law. For example, next week the court will hear arguments in a Nebraska case involving the ability of states to tax mutual fund shareholder income derived from repurchase agreements involving federal securities.
The court also will hear argument next week in a Georgia case that will determine whether the state must refund to federal retirees taxes that were collected before a 1989 Supreme Court decision, which found that the taxes were unconstitutional.
Also this month, oral arguments are scheduled in an Ohio case in which a lower court forced Medicare to pay a lump sum for part of a hospital's costs in refinancing two bond issues.
While the court's overall docket continues to shrink, this early sampling signals a term that is potentially heavy in cases of interest to state and local governments and other municipal market participants.
The addition of Justice Stephen Breyer to the bench could have a major impact on the way the court decides cases. Unlike Justice Antonin Scalia, Breyer is willing to consider the meaning of a statute in the context of its legislative history, court practitioners say. Scalia has exerted influence that has resulted in many decisions that rely on the plain meaning of a statute, rather than the intent of Congress.
For example, the high court decided last term in Central Bank of Denver v. First Interstate Bank that because the Securities Exchange Act of 1934 did not specifically state that its antifraud provisions cover those] who aid and abet a fraudulent securities transaction, there is no private aider and abettor liability under the law. Lower courts had interpreted the law as covering aiding and abetting since 1966.
Court experts believe Breyer, who takes to the bench for the first time, could be a strong counterweight to the Scalia camp that includes Justice Anthony Kennedy and often Justice Clarence Thomas. Kennedy wrote the Central bank of Denver opinion.
Breyer and the most recent appointee before him, Justice Ruth Bader Ginsburg, are not discernible advocates of states' rights, nor are they anti-states' rights, either according to attorneys who practice before the court. So it remains to be seen whether Breyer will be sympathetic to issues involving the ability of state and local governments to raise revenue and determine other autonomy matters, the attorneys say.
The following are highlights of cases to be reviewed in the new term, although a host of other cases also are of interest, such as Allied-Bruce Terminix v. Dobson, which is being argued Oct. 4 and addresses the scope of the Federal Arbitration Act:
* Hess v. Port Authority, to be argued Oct. 3. A group of 29 states and the State and Local Legal Center have intervened in this case, which arose from injury claims by two employees of PATH in 1986 and 1987. Each employee believed that their personal injuries were caused by negligence of the railroad and they sued in federal court under the Federal Employers' Liability Act.
The U.S. Court of Appeals for the Third Circuit held that PATH, because it is a wholly owned subsidiary of the port authority, is immune from such suits under the 11th Amendment's grant of sovereign immunity to states.
The high court could rule in one of several ways, saying that: only states are protected; bistate and single-state agencies are protected but their subsidiaries are not; both agencies and their subsidiaries are protected; or agencies and their subsidiaries are protected only if they are financially dependent on their founding states.
The port authority, which has about $4.5 billion of consolidated bonds outstanding, backs those bonds with its own revenues and not with claims on New York and New Jersey.
But the two states, which founded the authority in 1921, exert control over administration of the authority and use its surplus revenues to finance various state projects. The authority thus argues that a judgment against it is effectively a judgment against the states.
* Nebraska v. Loewenstein, to be argued Oct. 11. The case involves Nebraska's taxation of income earned by John Loewenstein from his shares in mutual funds that invest in U.S. securities through repurchase agreements, commonly known as repos.
The Nebraska Supreme Court struck down the state's tax because it said states cannot tax federal property under the constitutional doctrine of intergovernmental tax immunity. Taxing repos in effect taxes government securities, the lower court held. But the highest courts in six other states have upheld such taxation, mostly on the basis that repos are secured loans. Virtually all 50 states tax repo income.
* Reich v. Collins, to be argued Oct. 11. The dispute between federal retiree Charles Reich and Marcus Collins, head of Georgia's department of revenue, is part of a line of cases beginning with a 1989 Supreme Court decision in Davis v. Michigan, which held that state taxation of federal retirement benefits, but not state retirement benefits, violates constitutional principles of intergovernmental tax immunity.
The Reich case involves whether Georgia must pay refunds to retirees whose benefits were illegally taxed but who did not demand available state remedies before paying the 1988 taxes. The case is important for federal retirees in other states who have not received refunds on unconstitutionally imposed taxes.
* Shalala v. Guernsey, to be argued Oct 31. In this case, the high court is being asked to decide how quickly the federal government must reimburse hospitals for Medicare costs that they incur when advance refunding bond issues.
The justices' ruling could affect 126 other hospitals with similar pending administrative or court cases and could cost the federal government at least $100 million. The United States is arguing that Donna Shalala, secretary of health and human services, should have the discretion to reimburse hospitals for Medicare costs in any way she deems appropriate, regardless of how those costs are accounted for on a hospital's books.
The case involves a 1985 advance refunding by Cambridge, Ohio, on behalf of Guernsey Hospital of two issues of 501(c)(3) bonds. The hospital said roughly half of a loss of $672,581 due to a call premium it paid and to unamortized issuance costs from the old bonds was attributable to Medicare. In the dispute, Guernsey is seeking a lump sum payment, but the department says it will spread payments over the life of the refunding bonds.
* Oklahoma Tax Commission v. Jefferson Bus Lines, argument date not set. The high court will review an Oklahoma sales tax levied on bus and other transportation tickets sold within the state for intra- and interstate trips.
The U.S. Court of Appeals for the Eighth Circuit struck down the 1988 tax because it said it violates the Constitution's commerce clause. The clause prohibits states from erecting barriers to interstate commerce.
Jefferson Bus Lines collects the sales tax on intrastate tickets but not on interstate sales. However, the Oklahoma Tax Commission is requiring payments for the interstate sales. How Oklahoma apportions the tax is the central question.
* Plaut v. Spendthrift, argument date not set. The case involves whether securities fraud cases dismissed by lower courts under a 1991 Supreme Court ruling in Lampf v. Gilbertson can be reopened under a law designed to overturn the ruling.
The court deadlocked last term on the question after Justice Sandra Day O'Connor recused herself because she owned stock in one of the paris in a previous case. The Plaut case is a reprise of Morgan Stanley & Co. v. Pacific Mutual Life Insurance Co.
* NationsBank of North Carolina v. Variable Annuity Life Insurance, argument date not set. The case raises the issue of deference to a federal agency and whether banks can sell annuities. The case has implications for a growing legislative debate on whether banks can expand activities in insurance, municipal bonds, and other markets.